Big news hit Birmingham on December 15th when Baptist Health System announced that it had signed a non-binding Letter of Intent with a subsidiary of Tenet Healthcare Corporation, the parent of Brookwood Medical Center, to form a new, jointly-owned company that will include all Baptist Health System hospitals, Brookwood Medical Center, and their related businesses. The parties are now in a due diligence period, which is intended to result in a definitive agreement.

If this merger goes through, the combined entity will be huge. Brookwood has 3000 employees while Baptist employs 4300. The two organizations would combine for over 60,000 annual admissions with 1650 credentialed physicians.

According to Bill Cockrell of Cockrell, Egeland and Associates, the proposed combination holds several opportunities for the hospitals and their patients. “In the current environment, it’s difficult to increase revenue,” Cockrell says. “So it’s important to control costs. The biggest cost saving opportunity is to increase efficiency by eliminating redundant services. For example, maybe you consolidate the cardiology programs at one hospital. That’s going to be difficult to do because most hospitals don’t want to give up a service line.

“So the most likely cost savings will come through the purchasing departments. This alliance gives Baptist access to Tenet’s buying power which should reduce their expenses. That’s a big deal.”

And while increasing revenue is difficult, Cockrell explains that the combined, larger entity might grow volume because, with more physician-patient experiences to study, the organization could have an advantage in tracking quality measures resulting in more best-practice providers. For example, if the hospital pinpoints a physician who is doing the best job with joint replacement and they are able to duplicate that physician’s best-practices throughout the system, then the organization will have more quality providers of joint replacement.

“Healthcare reimbursements are moving toward a model based on quality and efficiency,” Cockrell says. “Primary care physicians will want to refer patients to providers that have the highest level of quality and efficiency because this reduces the overall cost and many incentive plans are based on the total cost.”

Will the combination mean more referrals from within the network? Possibly, but on the other hand, location still matters and a physician on one end of town might continue referring patients to providers close by. “The argument to that,” Cockrell says, “is that a doctor can say: ‘if I refer you to a doctor in our network, your records will get there quicker and I’m in better communication with them.’ And the patient-centered medical homes require that when doctors refer patients to a specialist, the referring doctor must keep track of the patient’s condition, so communication with the specialist is important.”

It’s uncertain as to whether or not this potential merger will affect other area hospitals. The competing hospitals are all part of large networks with buying power so there shouldn’t be a big cost advantage to the new organization.

Cockrell believes that any possible effect on the market might more likely result from a centers-of-excellence perspective. “For example,” Cockrell says, “Brookwood is known for their expertise in women’s health. Baptist is, of course, good in this area too, but Brookwood has a strong niche in this. If that could be duplicated at the Baptist hospitals, and they could leverage the women’s health reputation, it could affect other providers.”

Cockrell also notes that primary care is the key to hospitals and this merger expands the hospitals’ reach considering the primary care clinics Baptist and Brookwood both have. “I think the marketing opportunity for Baptist/Brookwood is to tell consumers that they have a high quality primary care network that is closely tied to some of the top specialists and because they are one network, they can streamline the process of getting the patient from primary care to the specialist,” Cockrell says.

Whether or not the merger actually happens is, of course, yet to be seen. And if it does go through, no one can predict the level of success. It will be important for Baptist to be able to maintain their faith-based identity. And it will be more difficult to maximize the benefit of a large merger in a market like Birmingham which is very territorial from a hospital, provider and patient standpoint. But without question, there are a number of interesting possibilities here.