The Chattanooga-based health system is quietly emerging as a major provider in the mountainous four-state region around Tennessee, Georgia, Alabama, and North Carolina.
Erlanger Health System made its first acquisition in North Carolina last month when it took control of Murphy Medical Center.
The acquisition, a member substitution, was hardly a rash decision on the part of Erlanger or Murphy. Rather, it seemed the logical course to take after four years of affiliation, says Erlanger COO Robert Brooks.
"They kept evolving through the affiliation agreement," Brooks says. "It grew from us putting the helicopter in Murphy, to providing hospitalist services in Murphy, to physician recruitment. Their board saw the value of what our health system could provide and so those talks continued further into 'why don't we see who’d be interested in being a partner.'"
The Murphy affiliation illustrates the modus operandi for Erlanger. Rather than swooping in to pick off vulnerable and isolated rural hospitals, Erlanger builds relationships through affiliations that address local needs, build trust, and demonstrate the value the nonprofit health system can bring to the relationship, Brooks says.
Erlanger has affiliation agreements with 13 hospitals that can range from providing education, providing physician or management services, to joint ventures, and eventually acquisitions.
"The reasons we entered into the relationship with Murphy is they've been having difficulty over the past five years of getting physicians to move into their community," Brooks says. "A new physician coming out of school doesn't want to move into a community where they are the only doctor in town. Really, with Murphy as a stand-alone, that is all they can offer."
"As part of the Erlanger Health System, we can hire an additional physician into our family medicine program, where we already employ 20 physicians," he says. "If they need a week off or call coverage we have other physicians to provide that. Murphy couldn't do that on its own."
Erlanger's Life Force helicopters provide another critical link for isolated rural hospitals in this rugged corner of Appalachia. Erlanger has expanded its fleet to include six helicopters serving hospitals in three states, covering approximately 50,000 square miles. "For the sickest of the sick, we bring our emergency room, our operating room, our ICU capabilities to the patient wherever they are to deal with some of those issues," Brooks says.
In nearby Sequatchie and Bledsoe Counties, amongst the poorest in Tennessee, Erlanger is building on longstanding relationships and will operate new facilities that both counties are building.
"We are going to build a 25-bed critical access hospital in Sequatchie Valley, and then a full-service freestanding emergency room and physician offices, outpatient and imaging center in Bledsoe County," Brooks says. "Both of those projects are being fully funded by their counties through bond issues, and they will be managed and operated by Erlanger. It's another example of how we provide health services for rural communities without Erlanger needed to spend the capital."
For services and expertise that are not a core business of a hospital, Brooks says Erlanger aligns with community partners or taps other experts.
"A good example would be our behavioral health hospital, a joint venture with Acadia Healthcare," he says. "They’re bringing the capital to the table. That building and all of the cash to get it going is 100% funded by Acadia."
"We’re providing things like the certificate of need,” he says. "We're moving our geriatric-psych unit into that building from our North Hospital, and we’re providing the brand name, Erlanger Behavioral Health Hospital. We are getting a new 88-bed hospital here in Chattanooga without a single penny out of Erlanger’s capital."
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These affiliations are one of the reasons why Erlanger has seen a near doubling of net revenues, from $600 million four years ago.
"This year, we will probably be very close to a $1 billion net revenue organization by the end of this fiscal year. By the time we get through FY '19 we will probably have doubled our net revenue within five years," Brooks says. "We are looking to continue to grow because that is the trend nationally. If you're not growing, you are putting yourself at risk against other entities that are growing faster than you."
Size matters, he says, when negotiating with commercial payers.
"What's pushing this is there are companies like United Healthcare who are now the largest employer in the country of physicians. They're really trying to control the market around the insurance payment, as well as the providers," he says. "For hospitals, we need to be able to still negotiate good rates with the payers. So, the larger the health system the better negotiating power you have with the large payers."
As for future acquisitions and expansion plans in Tennessee and beyond, Brooks says Erlanger is always willing to listen.
"There is nothing that’s been on the radar now," he says. "We have 13 affiliate hospitals and we want to be whatever it is that they need. They have a full menu of services, so the CEO and the board in that community can say from Erlanger we would like you to provide maybe cardiology, or neurology or urology services. We help them to have those services that are too difficult to bring into their community."
"Over time, if they see there is a value with them and Erlanger, we will entertain what those bigger relationships could be."
John Commins is the news editor for HealthLeaders.