A proposed merger between University Community Health and Adventist Health System would change the road map for health care services in the Tampa Bay area.

Adventist would become the No. 3 player in the market, and with its deep pockets would be a strong competitor than UCH alone against market leaders BayCare Health System and HCA Inc. Adventist would have more clout to negotiate with managed care health insurers, and would be well positioned for changes that could occur under health care reform.

“This is a reflection of what’s happening across the state and certainly across the nation,” said Mike Carroll, president of Tribrook Health Care Consultants in Tampa. “It’s a harbinger of additional merger activity coming down the pike.”

A need to ensure access to funding for future capital needs appears to be the driving force behind a recent spate of transactions involving nonprofit hospital operators, A.J. Rice, an analyst for Susquehanna Financial Group LLP in New York, wrote in an April 5 report.

Some nonprofits had been hoping health reform would provide a quick boost to alleviate capital constraints, but most of the significant changes that reform will bring won’t happen for a few years, so hospitals that need capital now are likely to align with better capitalized systems, Rice wrote.

New competitor

Adventist, based in Winter Park, and UCH, headquartered in Tampa, signed a nonbinding letter of intent in March to explore a merger between the two systems. A merger could take place by this summer, said Norm Stein, president and CEO of UCH. He said he would step down after the deal is done.

Both Stein and Mike Schultz, president and CEO of Adventist Health System’s Florida region, said it’s too early in the due diligence process to share concrete details. But Josh Kelly, Tampa market analyst with HealthLeaders-InterStudy, a Nashville-based research firm, said he doesn’t see any road blocks, especially since Adventist and UCH already have a joint venture to build the $121 million, 80-bed Wesley Chapel Medical Center.

Carroll said the proposed merger between the systems likely would resemble a noncash acquisition, with Adventist assuming UCH’s debt. UCH had $201.4 million in long-term bond obligations on Sept. 30, according to its most recent financial report.

Adventist, with $5.5 billion in revenue in 2008, has 37 hospitals, but only one of them is in the Tampa Bay area, the 154-bed Florida Hospital Zephyrhills. In contrast, UCH, with $502.5 million in revenue last year, has five hospitals with a combined 813 beds, and accounted for 9 percent of beds in the Bay area, HealthLeaders-InterStudy said.

BayCare and HCA are the dominant players in the market, with a combined 61 percent market share. With the new joint venture hospital, Adventist would be a solid No. 3, Kelly said. “You’d definitely have a major competitor that wasn’t there before.”

One difficulty could be that Adventist is not a familiar name in the area. “BayCare is the name brand and you will always have to compete with them,” Kelly said.

More sway with insurers

Increased size would give Adventist a choicer seat at the table than UCH has in negotiating managed care contracts, Carroll said. UCH facilities are in attractive locations, but insurers may or may not need UCH in their networks. Adventist, with hospitals across Florida and in nine other states, is more essential.

“It would give [Adventist] more sway in higher reimbursements,” Kelly said.

Under health care reform, the ability to organize an aligned system, coordinating care between hospitals, physicians and outpatient services, is key, Carroll said. “Because of its geographic presence and coverage and available capital, Adventist is well-positioned, as is BayCare is, to offer those aligned systems,” Carroll said.

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