The gist: Wednesday morning Lafayette General Health and Ochsner Health System ended years of speculation in local health care circles, sparked largely by a 2015 strategic partnership, that the two would eventually become one.
(Talk of the impending merger had ramped up in recent months. KATC broke the story late Tuesday night.)
It’s a merger among nonprofit health systems, which means LGH will maintain some aspects of its identity and won’t entirely relinquish its independence. That also means no big community windfall along the lines of the Rapides Foundation that spawned from Columbia/HCA’s purchase of Rapides Regional Medical Center in 1994. Instead, New Orleans-based Ochsner, the state’s largest nonprofit health system, has agreed to invest $365 million in the Acadiana region over the next decade. That figure includes dollars LGH anticipated spending on its own.
“It’s $240 million of new dollars on top of our normal capital spending we will be generating,” LGH President David Callecod said in a Wednesday morning press conference. “So this is a significant uptick in overall capital spending.”
It’s not clear whether that investment accounts for the costly migration to Ochsner’s health information system platform. LGH will switch to Epic Systems from Cerner as part of the merger. Vanderbilt University Health Center, which operates four academic hospitals in Tennessee, spent $200 million in a transition to Epic over two years. In response to a follow-up inquiry about the estimated cost of the move to Epic, LGH said it was in the early stages of this process and could offer no details.
“Over the next three years we will transition over to Epic,” Callecod offered at the press conference, “which we expect to occur by January 2023. We will be taking a very thoughtful approach,” he added, an apparent consideration of how docs might take to the new electronic health records software. (Lourdes switched from Cerner to Epic in recent years.)
Among the major opportunities in the merger are managed care contracting, physician recruitment, research, and investment in various innovations. According to the press release announcing a signed letter of intent to merge, Ochsner is promising to invest $50 million to expand services, including pediatrics, women’s health and cancer; a 10-year, $10 million community fund overseen by LGH’s board to advance health and wellness in Acadiana; a $2-$12 per hour pay increase across the system; an additional 48 residency positions; and a $1 million investment in the LGH Foundation’s Healthcare Innovation Fund, which announced a second round of funding at the end of August.
There will be challenges. And that’s expected. “They’re to be applauded for the aspiration that this merger represents, to try to change and improve health care throughout the state,” says retired Our Lady of Lourdes President and CEO Bud Barrow, who is now CEO of Beauregard Health System. “But with each great endeavor there are huge challenges, most of which will come around the merger of cultures and the reaction of an entrepreneurial and generally fiercely independent medical staff in Acadiana,” Barrow continues. “The physicians in Acadiana value their independence, and it will be a significant challenge to integrate the traditional Ochsner physician culture with that of Lafayette General and Acadiana physicians.”
Is this a matter of survival? Callecod didn’t mince words about the economic hurdles LGH has overcome in the last few years, struggles that reflect not only national changes in health care delivery and reimbursement, but also a local economy fighting its way out of a yearslong oil slump. “It’s important to know that this year we’re actually going to have one of the better years that we’ve had in the last five,” he said at the press conference. “For the near term, we certainly are in a strong position financially. But when you think about what’s happening in health care, it’s becoming more and more consumer driven with new competitors like Amazon, CVS, Walgreens.”
In other words, the community hospital model may be squeezed out by industry trends. “The threat isn’t imminent, but it is something that we’re concerned about,” Callecod said. “We need the resources.”
Callecod noted the scale created from the merger will help the system transition to value-based care, a healthcare payment model that pays providers on patient outcomes rather than volume of services rendered. “This deal will give us the tools we need to succeed in that new environment and will allow us to get there much quicker than we would on our own,” he added.
Public-private partnership uncertainty was a motivating factor. Callecod cited last year’s threat of the loss of state funding for University Hospital & Clinics as a catalyst for this deal. Hospitals continue to face near annual heartburn around reimbursement from Medicare and Medicaid, which increases risk for a smaller health system like LGH. The thinking is that with the scale of Ochsner, LGH will be better positioned to navigate any future funding challenges, both at the state level where Ochsner has significant influence and at the national level where Ochsner has a nationally recognized brand.
What to watch for: Will the merger be more about expense reduction or strategic growth, and who will ultimately make capital and other critical decisions. “The current leadership team and Board of Trustees will continue to guide the system and provide operational oversight,” Wednesday’s press release promises.
Observers don’t expect all of LGH’s top management to remain.
“In most mergers of this size, there is leadership consolidation at the top, so I would expect there to be some changes,” Barrow says. “However, if Lafayette General maintains its status as a regional hub in this part of the state on behalf of Ochsner, you may not see substantial leadership change.” — Additional reporting by Geoff Daily