Underwood-Memorial, South Jersey Health Systems to merge

Citing anticipated financial pressure as a result of federal health-care legislation, South Jersey Health System Inc. in Vineland and Underwood-Memorial Health System Inc. in Woodbury said Thursday they would merge.

"There is no doubt that health-care reform is creating an environment in which partnerships and alliances can be even more beneficial to health systems and the communities they serve," Michael McLaughlin, chair of the Underwood-Memorial Health System board of directors, said in a news release.

Chet Kaletkowski, president and chief executive of South Jersey Health System, said he did not expect the merger to result in layoffs at the two organizations, which employ 5,200 full- and part-timers. "We view this as a growth strategy," said Kaletkowski, who will remain CEO after the merger.

Driving the deal was the expectation of major changes in the way hospitals are paid, both by the federal government and by private insurance companies, with much greater emphasis on treatment outcomes.

"The payer, whether a federal or a commercial payer, is not willing to pay unless there's low cost and high quality," said Eileen K. Cardile, president and chief executive of Underwood-Memorial Hospital. She will remain in that position after the merger.

As one of three independent hospitals in South Jersey, Underwood-Memorial concluded it needed "to be part of something bigger to be able to manage and tolerate all these changes that are under way" in the health-care industry, said Daniel M. Grauman, president and CEO of DGA Partners, a consulting firm in Bala Cynwyd.

Underwood-Memorial had slim operating income of $1 million on revenue of $177 million in 2010, after losing a combined $6.7 million in 2008 and 2009, according to the most recent information available from bond documents.

The South Jersey Health System, by contrast, had operating income of $20 million on revenue of $356 million in 2010, up from operating income of $15 million on revenue of $342 million in 2009.

Boards of both systems have approved the merger and submitted it to federal and state authorities for approval, which they expect to receive in the spring.

South Jersey Health System employs 3,500 and has a medical staff of more than 600 physicians. It operates the 262-bed SJH Regional Medical Center in Vineland, the 96-bed SJH Elmer Hospital in Elmer, and the SJH Bridgeton Health Center, which has 65 mental-health and inpatient hospice beds.

Underwood-Memorial Hospital has 305 beds in its Woodbury facility, and employs nearly 1,700. Its medical staff numbers almost 400.