Methodist and Franciscan are discussing a potential merger that could create the largest hospital system in Northwest Indiana. The organizations are in the midst of a 120-day exclusive negotiating window, though Grady said the talks will likely last the rest of the year.
He said independent hospitals like Methodist struggle to compete in an era of continuing consolidation. The partnership would improve Methodist’s ability to recruit physicians, access to capital at a time when its facilities are aging and position in a changing reimbursement system where hospitals are paid to manage large patient populations, he said.
“This is a topic that’s on the agenda of every hospital board in our country,” he said.
Franciscan has also proposed to fund the $75-million-to-$100-million expansion of Methodist’s Southlake Campus in Merrillville, construct a medical office building next to the new Gary hospital and help start a medical residency program to train new doctors, he said.
Grady said Methodist only has access to about $35 million to $45 million in capital and borrowing money would hurt its bond rating.
“We will not compete with some of the other systems if we don’t start making some significant investments,” he said.
He noted that the partnership would require modifications to a 1970s U.S. Office of Civil Rights consent decree that ensures equal services at the Gary and Merrillville campuses. He said that decree made sense at a time when Methodist was threatening to leave Gary but hamstrings the hospital system in the new health care landscape.
Under the decree, Grady said, Methodist has to get approval for any investment over $100,000 when its competitors have no such restrictions.
“We can remain independent for a short period of time. Sooner or later, the economics of health care are going to catch up with us,” he said. “Should we at Methodist manage the future or should we manage the status quo?” he said.