October 22, 2018

UConn Health solicits financial partners

UConn Health campus in Farmington

Following through on a directive from state lawmakers, UConn Health is taking the next step in searching for a potential partner to help bolster its financial future.

On Monday, the Farmington health system -- anchored by the 234-bed John Dempsey Hospital -- released a solicitation of interest letter, hoping to attract suitors for a public-private partnership for its clinical enterprise.

It's the first time UConn Health has taken such a step in about a decade, when a similar process led to it proposing a merger with Hartford Hospital in 2009, which ultimately did not happen.

An arrangement involving the hospital and UConn Medical Group could take the form of a merger or some other arrangement, and partners could include other hospitals or hospital systems, or even managed care organizations, large physician groups or some other type of entity.

"We're casting a very wide net," Dr. Andrew Agwunobi, UConn Health's CEO for the past three years, said in an interview.

UConn Health has not set any defined structure for potential partnerships, and Agwunobi said his team intends to look both at local partners as well as those in other states. Any deal would only include the hospital and medical group -- not the medical or dental schools.

"We're optimistic we will get some interesting responses," he said.

UConn Health's solicitation letter details its various financial challenges. Though it has seen growing patient volumes in recent years and inched up its local market share, it has a large union workforce of state employees and is required to contribute to the state's massive unfunded pension liability.

The end result for the health system is a challenging cost structure, including a fringe benefit rate of about 70 percent, compared to an average of 29 percent for other Connecticut hospitals. (While UConn pays that relatively high rate, Agwunobi noted that employees are not receiving the full 70 percent.)

A partnership is needed, Agwunobi said, because the future holds further challenges for the financial sustainability of UConn Health.

For example, increasing hospital consolidation will have an impact. Agwunobi expects UConn Health to lose some patient volume to narrow networks that have been formed by area health systems and health insurers -- networks that exclude UConn.

"Even though we have done better financially recently, we see there are strong headwinds in the next two to three years," Agwunobi said.

Responses to UConn Health and its financial advisor, Cain Brothers, part of Keybanc Capital Markets, are due Dec. 2.

Though UConn Health is not obligated to do any deal, Agwunobi said the system could make a decision as soon as late this year or early next year.

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