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O.C. Hospital Latest to Join Merger Trend : Health care: Alliance with Long Beach-based company will help struggling Anaheim Memorial to remain competitive.

SPECIAL TO THE TIMES

Mirroring an ongoing industry trend, Anaheim Memorial Hospital said Tuesday that it has agreed to merge with a Long Beach-based company that operates other hospital facilities in Southern California.

Officials of the 37-year-old institution, the first hospital in Anaheim, said that they decided to join with Memorial Health Services to cut costs and survive amid rising pressures from the managed-care industry.

“We need to operate in a much larger geographic environment to lower our costs,” said Chris Van Gorder, president and chief executive at Anaheim Memorial.

Anaheim Memorial earned more than $11 million in 1992 on revenue of $70.8 million, but the hospital’s financial ledger has been sagging since then. The hospital lost $3.1 million last year on revenue of $61 million. Early this year, executives began to search for a merger partner.

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Anaheim Memorial, which has 224 beds, will operate as a subsidiary of Memorial Health Services when the deal is completed at the end of the year, executives said, but will have a separate board of directors and continue to control its daily operations.

Memorial Health Services operates 752-bed Long Beach Memorial Medical Center and 220-bed Saddleback Memorial Medical Center in Laguna Hills. Saddleback Memorial merged with the Long Beach company in 1982.

Thomas Collins, chief executive of Memorial Health Services, says that the company merged with Anaheim Memorial because of its dominance in the Anaheim area. “It’s a quality hospital that doesn’t compete with Long Beach” Memorial, he said.

Industry experts say that as health plans have gotten bigger, hospital systems have been forced to expand their geographical areas of coverage to serve members of health maintenance organizations. Hospitals have been looking for merger partners to accommodate the more widespread membership of health plans, as well as to gain greater negotiating power with these managed-care plans. A majority of the patients at Anaheim Memorial are members of managed-care plans.

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Jon Gilwee, vice president of the Orange County chapter of the Health Care Assn. of Southern California, said that Anaheim Memorial will be able to expand its network as a result of the merger and cut costs by drawing on Memorial Health Services’ larger resources.

“As part of a larger system, it could make the flow of services much easier,” he said.

Anaheim Memorial officials said they will be able to reduce costs in such areas as medical supplies, legal coverage and insurance services.

The facility had 936 employees at the beginning of the year, but Van Gorder has trimmed the payroll to 877 through layoffs and attrition.

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Van Gorder, who was named chief executive in January, laid off 48 managers. “We were really top-heavy in management,” he said.

Officials said they have no plans to make additional staff cuts.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Hospital Merger

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Anaheim Memorial Hospital will merge with Memorial Health Services, a nonprofit corporation that includes Long Beach Memorial and Saddleback Memorial medical centers. The combined facilities will have 1,196 beds, 2,300 physicians and 5,577 employees.

ANAHEIM MEMORIAL HOSPITAL

Location: Anaheim

Founded: 1958

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President/CEO: Chris Van Gorder

Designation: Nonprofit

Employees: 877

Physicians: 500

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Beds: 224

Facilities: Emergency facility and paramedic base station, Heart Care Center of Orange County, newly remodeled birth unit with Level II neonatal intensive care unit, and diagnostic testing center for outpatient testing

MEMORIAL HEALTH SERVICES

Location: Long Beach

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Founded: 1980

CEO: Thomas Collins

Designation: Nonprofit

Employees: 4,700

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Physicians: 1,800

Subsidiaries: 752-bed Long Beach Memorial Medical Center, 220-bed Saddleback Memorial Medical Center in Laguna Hills

Long Beach facilities: Third-largest hospital on West Coast; includes specialized children’s facilities, heart and cancer institutes and the Memorial-UCI Center for Health Education

Saddleback facilities: Neonatal intensive care unit, Saddleback Heart Institute, Saddleback Home Care Services, Hospice of Saddleback Valley and Saddleback Cancer Services

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Financial Diagnosis

Anaheim Memorial has recently suffered through a difficult economic period, with relatively static revenue and some losses. Memorial Health Services, however, has seen its profit increase over three consecutive years. Revenue and net income, in millions:

Net Revenue

Anaheim Memorial Hospital

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1995: $62

Memorial Health Services

1995: $387

Net Income

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Anaheim Memorial Hospital

1993: $0.7

Memorial Health Services

1995: $19.2

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Source: Anaheim Memorial Hospital, Memorial Health Services; Researched by JANICE L. JONES / Los Angeles Times


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