UT Southwestern Medical Center acquires Zale Lipshy University, St. Paul University Hospitals

12/22/04

DALLAS Dec. 22, 2004 Zale Lipshy and St. Paul University Hospitals will consolidate with UT Southwestern Medical Center Jan. 1, 2005, a move medical administrators hail as crucial to the center's further development and delivery of world-class patient care.

University Medical Center Inc., a nonprofit holding company, will transfer ownership of the 152-bed Zale Lipshy to UT Southwestern. The medical center purchased the physical assets of the 300-bed St. Paul in 2000 and will acquire its business of nonprofit hospital operation on New Year's Day. UT Southwestern will pay a total of $170 million in the transactions. After all outstanding obligations and liabilities of the hospital are settled in the next three years, the balance of that payment will be returned to UT Southwestern as a gift. Through an agreement with UMC Inc., UT Southwestern has managed the hospitals since early 2003.

Medical center administrators say consolidation of the hospitals under the UT Southwestern banner and governance is an investment whose return will begin immediately, securing UT Southwestern's place among the nation's top-tier academic medical centers like Johns Hopkins, Duke and UCLA all of which operate their own hospitals.

"This is a critical step in becoming a national and international medical destination for people seeking top-quality, specialized care," said Dr. Kern Wildenthal, UT Southwestern president.

"It allows us to deliver seamless care and service to all our patients by directly supervising their medical experience whether they are in our outpatient clinics or hospitals," he said.

Dr. John McConnell, executive vice president for health system affairs and chief executive officer of the health system including the university hospitals said, "We intend to achieve national prominence in clinical medicine. Our clinical care is as good as you'll find, but it's not as comprehensive in all areas as it could be. We want it to be recognized. We want it to be as renowned for our patient care as we are for our research and education."

"I think this is as important in the history of the medical center as when we opened Zale Lipshy in 1989," said Paul Bass, chairman of the Southwestern Medical Foundation and former chair of the Zale Lipshy board. "Before then, we were the only medical school in the country without our own private referral hospital.

"This merger will enhance the entire North Texas area in patient care, medical education and research. Physicians will be able to deliver the best care and provide access to the most advanced clinical trials and innovations because the center will basically be one operation."

Improved quality of clinical care will lead to an overall strengthening of UT Southwestern, administrators say. Education, research and patient care all work together, complementing one another. Developing renowned clinical care, for example, will help in recruiting top physician scientists, obtaining federal and private foundation grants, and broadening the scope of clinical trials.

Dr. McConnell said he believes the school's early operational moves already are providing positive results. Those moves included consolidating the hospitals' information-technology systems, which saved $1.8 million, as well as streamlining other services and the work force at the two hospitals.

He said he has full confidence in the leadership UT Southwestern has put in place to run the new hospital entity, which will operate under the name UT Southwestern Medical Center.

"We have a great management team," Dr. McConnell said. "If you want to be world-class you have to have world-class management."

Sharon Riley was recently hired as president of St. Paul and Zale Lipshy University Hospitals and UT Southwestern's vice president for hospitals. She was formerly chief operating officer of Anne Arundel Medical Center in Annapolis, Md., and before that was chief operating officer of the University of Nebraska Medical Center and vice president of Nebraska Health System.

"When the same visionaries say they want to build a world-class hospital, I want to be a part of it," Ms. Riley said. "I want to help build a hospital environment where the medical staff can practice their world-class skills to bring their advances and discoveries into the inpatient setting. When that happens, the patients, the community and the state all benefit."

The decision to consolidate involved a long and thoughtful process, medical administrators said. In 2002, as part of UT Southwestern's $100 million Clinical Services Initiative, faculty leadership, hospital boards and community supporters "encouraged the school to study and investigate what would be required to bring UT Southwestern's patient service programs up to the highest standard," Dr. McConnell said.

That suggestion led to groups of UT Southwestern officials visiting leading academic medical centers around the country, including Duke University Medical Center, Northwestern University, Johns Hopkins, Massachusetts General Hospital and Stanford University Medical Center. In addition, they did a detailed study of a consultant's report on Mayo Clinic. From those investigations, Dr. McConnell said, "a white paper was developed that really outlined a series of initiatives that would close the gap, to achieve that same overall quality and service at UT Southwestern.

"What we found was that we are structured much differently than other nationally-leading medical centers. They were much more integrated in their inpatient-outpatient operations, under consolidated management."

That's when UT Southwestern leaders began thinking in earnest about a consolidation of all clinical services under UT Southwestern. The school utilized Zale Lipshy and owned St. Paul's buildings, but because of corporate and legal strictures UT Southwestern could not combine their operations or merge them with the school's outpatient clinics, which only served to hamper financial flexibility and inhibit the services of each entity.

Zale Lipshy opened in 1989 as a private referral and teaching hospital for UT Southwestern. Both Zale Lipshy and St. Paul were operating under UMC Inc. before their transfer to UT Southwestern at the end of 2004.

"We were landlocked at Zale Lipshy," said David Quinn, UMC's chairman of the board. "We knew if we were to develop new facilities we had to look to the St. Paul campus."

The idea of integrating the hospitals into UT Southwestern Medical Center was given impetus by recommendations of two independent parties the external advisory committee for UT Southwestern's Clinical Services Initiative and the Hunter Group hospital consultants.

Operating two separate, small hospitals in today's medical marketplace is detrimental to the bottom line, administrators said. The hospitals together lost several million dollars in 2002 and 2003 while being operated as separate private entities. Under UT Southwestern's management, the hospitals improved their financial performance dramatically in 2004 and are projected to break even after the consolidation in 2005.

In August 2004, the UT System Board of Regents approved the acquisition and consolidation of the hospitals, which would bring 2,200 new employees into the official UT Southwestern family.

Mr. Quinn extols the benefits: "the tremendous economies involved, the opportunity to bring together shared talent, elimination of redundancies, a stronger position to improve managed-care contracts, and access to capital."

More importantly, he said, for the patient, "UT Southwestern can now be the provider of one-stop, seamless care delivery."

Said Dr. McConnell: "From day one in 2005 it allows us to begin developing strategic plans for each of our major patient-care service lines that take advantage of an integrated structure. To have an environment where hospitals and physicians can do joint planning is the key to success."

In addition, he said, consolidation will help eliminate patient confusion and marketing obstacles brought on by a lack of brand identity. "This is one of the things that has really inhibited our local, regional and national reputation. People were always confused about who we really are."

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