Scripps Clinic, Hospitals Sign Merger Pact

Signing a historic agreement on a page marked with a Post-It, top officials of two institutions founded by philanthropist Ellen Browning Scripps united Thursday to create the first of an expected string of health care conglomerates in San Diego County.

“The reaffiliation will enable coordinated efforts in planning for the long-term success of our two entities and their respective operations, all for the ultimate benefit of the people we serve,” said Ames Early, chief executive of Scripps Memorial Hospitals.

With smiles and enthusiasm but little pomp, Early and Scripps Clinic President Charles C. Edwards signed an agreement merging them into a new Scripps Institutions of Medicine and Science. Their signatures came on the last page of a thick merger agreement, flagged with a yellow Post-It just in case.

It was a fittingly casual end to whirlwind negotiations that moved from the embryo stage into the birth of a new corporation in just six months. But what a youngster it is:

* With 1,600 physicians and 6,200 employees, the new Scripps is the largest health care concern in the county, outdistancing Kaiser Permanente. Its facilities range from a state-of-the-art trauma care center to transplantion and cutting-edge cancer treatment and clinical research programs.

* The Scripps Institutions have not one but two well-equipped research institutions under them: the Research Institute of Scripps Clinic and the Whitter Institute for Diabetes.

* Researchers testing new drugs developed at Scripps Clinic will, for the first time, have ready access to a large group of patients, provided by Scripps Memorial’s three hospitals in Encinitas, La Jolla and Chula Vista.

* The new health care concern will be big enough to offer complete health insurance packages not only to private employers but also to the federal Medicare program.

“We’ll have the ability now to put together plans that we can present to the business community of San Diego,” Early said. “One of the hoped-for accomplishments of the reunification is that we can meld with maintaining the diversity of medical practices an ability to package services . . . (for) the business purchasers in our community.”

Scripps Clinic already is contracting in a pilot Medicare HMO-type project that some see as the wave of the future, said Robert Erra, senior vice president and chief operating officer of Scripps Clinic and Research Foundation.

If expanded, the contract would give the new Scrippses “a steady stream of patients that we can treat on an equitable basis,” he said.

The merger is being called a reaffiliation because the two institutions originated as one, founded in La Jolla by philanthropist Ellen Browning Scripps. They split 44 years ago and began discussing a merger in July.

Those discussions surprised Sharp HealthCare, which earlier in the summer had begun discussing a merger with Scripps Clinic. Rebuffed, Sharp quickly began merger talks with the Grossmont Hospital District.

Those talks could eclipse the new Scripps conglomerate in size if they end in a merger, planned as early as next month.

The string of affiliation talks doesn’t surprise health care industry analysts who have been predicting such moves for several years. In a competitive marketplace with heavy pressure to cut down on health care costs, it is the only way for health care institutions to survive, the analysts say.

“Hospitals are moving into affiliated systems to secure their market share,” said Jim Lott, executive director of the Hospitals Assn. of San Diego and Imperial Counties. “We’ll see more of it statewide. San Diego is about four to five years in front of the rest of the state.”

For patients, the affiliations will mean more pressure on them to join Kaiser-style health maintenance organizations or “preferred provider” networks of doctors that contract with insurance companies.

The Scripps merger contract signed Thursday creates a parent nonprofit company called Scripps Institutions of Medicine and Science, with a separate board from all its subsidiaries. Edwards is president of that corporation, and Early is executive vice president and chief operating officer. The subsidiaries will be:

* Scripps Memorial Hospitals, consisting of the three existing hospitals and a planned hospital in San Marcos, as well as two nursing homes, medical office buildings, the diabetes research institute and a variety of specialty programs.

* Scripps Clinic and Research Foundation, consisting of Green Hospital, Shiley Sports Center and other clinical facilities at the existing site on Torrey Pines Mesa, plus outpatient clinics throughout the county. The Scripps Clinic Medical Group will remain part of this division.

* The Research Institute of Scripps Clinic, consisting of existing buildings there plus others planned across the street near General Atomics.

* The Scripps Foundation.

Each will operate with an independent board under the overall supervision of the parent firm, Edwards and Early said.

The major change contained in the new structure is the separation of the Research Institute of Scripps Clinic completely from the clinical facilities. That separation won’t occur until July 1, Edwards said.

Dr. Richard Lerner, now the director, will be the president of the new independent research institute.

Many details remain to be decided in the merger, Edwards and Early acknowledged.

“It’s important for everyone to recognize that we’ve put this reaffiliation together in a period of approximately six months. And, in a short period of time, there are only a limited number of things that you can do,” Edwards said. “We just haven’t had time to really get involved in the programmatic kind of things.”

In the short run, the new Scripps must resolve issues such as when to discontinue contracts with Sharp for delivering Scripps Clinic babies and whether to buy out the Hospital Corp. of America, which now operates Green Hospital at Scripps Clinic.

HCA built many of the hospital buildings at the clinic, including a recent hospital expansion and the Shiley Sports Center, so the cost could be substantial, Erra said. Nonetheless, all the contracts contain provisions that could permit them to be bought out within the next 90 days, he said.

Edwards said the one cooperative program outside the new Scripps network that he hopes will remain is a joint organ transplant program with Sharp.

“We hope that that continues, and Memorial will become part of it. I think in a community of this size there is only room for one liver transplant program, and, in my opinion, there is only room for one heart transplant program,” Edwards said.

Sharp and Scripps Clinic had agreed last year to refer transplant cases to each other to avoid duplication of effort. Scripps Clinic specializes in bone marrow, liver and kidney transplants, and Sharp is focusing on heart and heart-lung transplants. Heart and lung operations also are done by UC San Diego.

Over the longer run, how to meld existing research and clinical facilities as well as fund raising will have to be decided, but there is no hurry, Early and Edwards said.

The board of the new Scripps Institutions will include 14 members: Edwards, Early and six members from each of the “old” Scrippses. Officers will be elected at a first meeting, on Jan. 17.

Two of the board members are physicians, a plan arrived at after physicians complained over the past few months that they weren’t being consulted about merger details and how it would affect them.

The merger will position the new Scripps to compete effectively with UCSD, which is building a plush new Thornton Hospital in La Jolla just south of Scripps Memorial, Erra said.

Scripps Memorial-La Jolla had been particularly concerned that the research-oriented, high-profile Scripps Clinic and UCSD would rob them of lucrative specialty patients. Now, Scripps Memorial will in effect have the resources of Scripps Clinic to woo such patients.

Creating the merger now will cut Thornton’s overall impact, Erra said.

“This reaffiliation gives us a three-year head start,” Erra said. “And I think that, once you’re a leader, you can establish yourself, and it’s very difficult for the competition to really make an impact.”