Montgomery General Hospital, after 85 years of independent operation, announced this week it is seeking proposals from other health care providers to set up a partnership.
Despite reports that the hospital is on the verge of a buyout, Peter Monge, the hospital’s chief executive officer, is adamant that Montgomery General is not up for sale.
“We are truly looking for a partner,” he said. “We are looking for someone who can come in and help us speed up our development programs, and we want to remain a community hospital.”
The hospital has not produced big profits over past several years and last year recorded a $1.5 million loss. But after a round of layoffs and renegotiated contracts with supply companies, Montgomery General expects a $2.7 million surplus this year.
Yet the hospital is still coming up short on financing an ambitious $30 million expansion plan for a new emergency room and administration building. The hospital building is more than 40 years old, and its inpatient rooms need to be updated to contemporary standards.
“We just don’t have the borrowing capacity to complete the plan,” said Lynn Myers, vice president of planning, marketing and business development. “We’re struggling to pay for it all.”
By partnering with another hospital, Montgomery General would likely get the funding to complete the expansion project and get expertise in areas such as physician recruitment.
At this time, the hospital does not have any doctors on the payroll. Physicians such as radiologists and neurologists work in the hospital under outside contracts.
Mr. Monge said the hospital is seeking to hire about 35 physicians in specialty areas such as obstetrics and family services.
“This hospital does not have enough specialty physicians to serve this growing community,” he said.
Montgomery General boasts an A3 bond rating by Moody’s bond rating services, and has cash and investments in excess of $30 million, the hospital says, which should make it an attractive partner.
The request for proposals will go out this month to a selected group of area hospitals, some of which have submitted bids to buy Montgomery General in the past. A decision to move ahead with a partnership will come in the fall.
A dramatic population increase in the area coupled by Montgomery General’s size — it is the smallest facility among five hospitals in Montgomery County — are factors in the decision to seek a partner. The population in Montgomery, Carroll, Howard and Frederick counties is projected to grow between 23 percent and 47 percent by 2020.
Montgomery General has not followed a nationwide trend of hospital margins increasing.
“We’ve seen hospital margins going up, but the hospital world is divided into the haves and have-nots, and the have-nots need to align themselves with stronger partners,” said Jim Vaughan, managing director at Cain Brothers, a merger-and-acquisition services firm that specializes in strategic partnering to nonprofit and investor-owned hospitals and health systems. “Gaining access to physician groups and cutting duplicative costs is what hospitals look for in partnerships.”
Hospital mergers are also not uncommon when reimbursement from health insurers goes down. And as health insurers have consolidated over the past several years, reimbursement levels have decreased for some hospitals. To counteract that swing, hospitals merge to gain greater leverage in negotiating reimbursement contracts with insurers.
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