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May 20, 2014 11:46 AMPublication: The Southampton Press

SUNY Board's Vote Could Be Sign That Hospital Merger Is Moving Forward

May 20, 2014 12:22 PM

A planned merger of Southampton Hospital and Stony Brook University Hospital has been stuck in neutral for months, but a vote by the State University of New York Board of Trustees in early May might be the first tangible step forward—with a significant next step coming as early as June.

The two hospitals have a confidential agreement in place, with most of the major points resolved when it comes to the structure of an eventual merger of the two, and Southampton Hospital officials have tentatively signed off on the proposal. But SUNY, which operates Stony Brook University, will have the final say on whether a merger takes place—and they have been moving at a much more careful pace.

The reason: The proposed merger of Southampton and Stony Brook hospitals under a single operating license came just months after a similar merger between a SUNY facility and another private hospital in Brooklyn proved to be an unmitigated fiscal disaster for the SUNY system.

SUNY Downstate Medical Center took over Long Island College Hospital (LICH) in 2011, but very quickly the new acquisition began losing money. SUNY decided to close the hospital, but that prompted a lawsuit, and that in turn tied the transaction up in court, making it impossible for SUNY to sell LICH. Crain’s, a New York business website, reported in February that attempts to settle the lawsuit and clear the way for a sale had fallen through. The website noted that even a sale likely would leave SUNY $200 million in the hole as a result of the acquisition.

H. Carl McCall, chairman of SUNY’s board of trustees, told Crain’s, flatly, “This has been very costly for us. It was a mistake.”

Robert Chaloner, president and CEO of Southampton Hospital, called the Brooklyn deal “a huge mess, frankly” for SUNY, and acknowledged that the Southampton-Stony Brook merger, potentially a good one for both entities, is a victim of bad timing.

“Basically, they put us through an incredible due diligence,” Mr. Chaloner said of SUNY’s trustees. “Locally, Stony Brook never had an issue. Stony Brook wants to do a deal.”

On May 7, the SUNY board approved a resolution that might hint that progress is near. The trustees agreed that they support the “development of viable, long-term regional health networks and collaborations by its hospitals,” and instructed SUNY Chancellor Nancy L. Zimpher to “assess and approve” those opportunities.

The resolution specifically mentions the “active discussions” between Stony Brook and Southampton “to begin development of an eastern Long Island network.” It also points out the benefits of new networks and collaboration in a climate of reform in the health care industry, as well as opportunities it could present to SUNY as an educational entity.

The resolution is open to interpretation—Mr. Chaloner said he expects Ms. Zimpher would go back to the SUNY board to formalize any final merger between the two entities, not to approve it on her own—but it appears to be a promising development, since it’s the first time the SUNY board has officially endorsed the concept in the wake of the Brooklyn fiasco.

Next up could be the submission of an application to the Department of Health for a certificate of need, which would begin to clear the way for the actual merger. That could happen at the board’s next meeting in early June; Mr. Chaloner said he had thought it could happen as early as May. It would be nearly a year before the Department of Health finished the review and allowed a formal vote from all parties on a final merger.

Merging Southampton and Stony Brook hospitals would be a major step for both, and it could lead to Stony Brook creating a network of hospitals on the East End, much the way North Shore-Long Island Jewish has expanded to 16 hospitals elsewhere on the island. A centerpiece would be a new Southampton Hospital built on the campus of Stony Brook Southampton, which would cost an estimated $225 million.

Mr. Chaloner said Southampton Hospital is the perfect partner for Stony Brook: the two already share facilities and a doctors network, the geography is favorable, and there are many other connections between the two institutions. As a result, both are patiently awaiting SUNY’s imprimatur on the deal—though they see the ongoing delays as unfortunate. “It’s a lost opportunity and lost time, from my perspective, and I think Stony Brook feels that way too,” he said, noting that the original hope was for the merger to be resolved by the end of 2013. Now, it appears likely to be 2015 before any final agreement is inked.

According to Mr. Chaloner, the agreement would allow Southampton to continue under Stony Brook’s Article 28 operating certificate. But the Southampton Hospital Board of Directors has structured a deal that would allow the Southampton Hospital Association to retain ownership of the physical assets, which would be leased to Stony Brook as an operator of the local hospital. Likewise, employees at Southampton would work for the association and be leased to Stony Brook. Even a new building, a big part of the hospital’s future, would be owned locally and leased to Stony Brook.

The local board pushed for that arrangement, Mr. Chaloner said, for a simple reason: Should Stony Brook at any time decide to close the local hospital, all of the assets would revert back to the local association, which could revive Southampton Hospital.

Despite the safety net, the local board is very optimistic that a merger would benefit both Southampton and Stony Brook hospitals—as well as SUNY. “It’s pretty unique, and I think a very, very exciting deal,” Mr. Chaloner said.

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