Why Might Baylor Scott & White Be Merging Its Heart Hospitals?

Baylor Scott & White Health’s North Texas heart hospitals are a bit of a tangled web, but the state’s largest nonprofit health system is considering uniting them, according to a statement from the company. Experts say merging hospitals could provide cost savings in a financial environment that has been difficult for hospital margins.

Let’s untangle the organizational web. Baylor Scott & White Heart and Vascular Hospital is adjacent to Baylor University Medical Center in Old East Dallas and has 53 staffed beds, according to the American Hospital Directory. It was the region’s first hospital focused on cardiac care when it opened in 2002 and is owned and operated by the nonprofit system. Baylor Scott & White Heart and Vascular Hospital – Waxahachie is a relatively new 30,000-square-foot facility that occupies a couple floors of the medical office building adjacent to Baylor’s Waxahachie hospital and is affiliated with the Baylor’s heart hospital in Dallas. Additionally, Baylor Scott & White Heart and Vascular Hospital – Fort Worth is an affiliate of the Dallas hospital and occupies 50,000 square feet at Baylor Scott & White All Saints Medical Center – Fort Worth.

On the north side of the region, Baylor Scott & White The Heart Hospital – Plano is a 109-bed joint venture hospital that opened in 2007 adjacent to the health system’s Plano facility and has a reputation as one of the best heart hospitals in the country. It also has a network of affiliates, including Baylor Scott & White The Heart Hospital – McKinney, which offers outpatient services for BSWH’s Plano heart hospital. The Heart Hospital Plano’s other affiliate is Baylor Scott & White The Heart Hospital – Denton, a 22-bed facility with one of the region’s most extensive open heart surgery programs.

According to Newsweek, Baylor Scott & White Health has the 20th-best cardiac program in the nation. Baylor Scott & White The Heart Hospital—Plano and The Heart Hospital—Denton perform the most heart bypass surgeries combined in the United States and the third-highest number of heart valve surgeries in the United States.

Whatever happens, two things are clear: As the population ages, cardiac programs are likely to grow and respond to the needs of Baby Boomers. Additionally, specialty hospitals with a high surgery volume of insured patients are more profitable than hospitals providing more charitable or safety net care. According to the National Institutes of Health, adult cardiovascular spending increased from $212 billion in 1996 to $320 billion in 2016. The journal Circulation found that one in three adults received care for a cardiovascular risk factor in 2020 and that healthcare costs for cardiovascular risk factors are projected to triple between 2020 and 2050, from $400 billion to $1.3 trillion.

The six BSWH heart hospitals fall into two major groups as affiliates of either the Dallas or Plano heart hospitals. When a source told D CEO Healthcare that the system was looking at merging the entities, we inquired with the system, and BSWH responded with a statement: “Baylor Scott & White Health is in the early stages of exploring an opportunity to bring together two of its high-quality, comprehensive cardiovascular programs. We look forward to sharing more details if the opportunity develops.”

BSWH didn’t provide any information about why the organization would want to merge the two programs or exactly which two programs will be brought together, but the most logical option is uniting the Dallas hospital and its affiliates with the Plano entity and its affiliates. D CEO Healthcare spoke to some experts about why a hospital system would want to go that route, if it is what the system is thinking.

Daniel Karnuta is a professor at UT Dallas’ Naveen Jindal School of Business and director of the school’s Professional Program in Healthcare Management. Prior to working at the university, he was the Chief Financial Officer of Conifer Health Solutions and spent two decades working for Perot Systems.

Karnuta pointed to finance as a significant driver for potentially consolidating the heart hospitals’ leadership. With that many heart hospitals, the organization may have become too top-heavy, with highly paid executives and administrative support staff at each hospital who may be redundant. Consolidating some administrative services could allow the system to deploy its talent elsewhere.

“If it can all be managed centrally, that can be better,” Karnuta says. “Oftentimes, the goal is to make it more streamlined, so they don’t have five or six separately operating units. Over time, all of the processes become the same.”

If the Dallas and Plano heart entities merge, ownership could also be a factor. The Dallas hospital is part of the nonprofit health system, while the Plano hospital is a joint venture with local physicians. As the original partner physicians have retired over the last 20 years, younger physicians may be less interested in investing in the hospital business as hospital margins have thinned, says Evangeline Lalangas, senior attorney at Bradley who focuses on healthcare and M&A.

In 2010, the Affordable Care Act banned the expansion of physician-owned hospitals and prevented new ones from opening. If The Heart Hospital – Plano changed its ownership structure in a merger with the larger health system, physicians couldn’t open another heart hospital down the road without a legislative change. The American Medical Association and American Hospital Association both continue to make their case to lift or keep the ban on physician-owned hospitals, respectively.

Changing the ownership structure may provide financial advantages, Lalangas says. “My initial reaction is that the move is payer-driven. There may be an advantage to consolidating ownership for payer contracts. Payer pressure is getting pretty intense; costs are going up every year and impacting the financial model of operating a hospital, even a productive one.”

Creating a stronger connection between BSWH’s flagship hospital and the system’s facilities in the northern market, where patients are more likely to be wealthier and have better health insurance, could be a smart business move. “With a broad patient base and patients coming from all over North Texas, there may be an advantage financially to bringing Plano into the umbrella with the Dallas location,” Lalangas says.