PeaceHealth, Madrona closer to approving merger

Merger would bring 100 physicians together under one healthcare system


Dr. Erick Laine, CEO of Madrona Medical Group, says that a deal for the PeaceHealth acquisition of Madrona could be reached by the end of January. The final deal would then need to be approved by each organization’s board of directors as well as Madrona’s stockholders.


Merging can be tough.

In the business world, there is no simple button to push. It’s more than just merging two accounting spreadsheets together. And in real life, there is more at stake than just accidentally deleting important data.

So when two of the largest health-care organizations in Whatcom County agreed to explore the option of merging, they undertook a complicated and time-consuming process.

In August 2007, Madrona Medical Group approached PeaceHealth Whatcom Region, which is the parent organization for St. Joseph Hospital, with a proposal for affiliation.

“The hospital and Madrona, being two integrators of healthcare, have natural affinities to come together and take it to the next inevitable step, to a higher level of integration,” said Dr. Erick Laine, the CEO of Madrona Medical Group. “That’s really what this merger is all about, to bring together the systems of healthcare that allow us to do serious quality enhancements and to significantly improve access to healthcare. As you are probably aware, there are a lot of people in town that still can’t get access.”

Right away, core teams from each organization began meeting every week to explore the idea and possibility of a merger. The first step in this process, called due diligence, was the discovery phase, during which the two groups spent several weeks just getting to know one another and deciding what kind of affiliation would work between them.

By the end of October, the teams had agreed that an acquisition of Madrona by PeaceHealth would work for both parties. Thus began the negotiation phase, which could last through the end of January, Laine said.

At that point, the core teams will present their recommendations to their respective boards of directors. Madrona will also present to their stockholders, since they are a privately held company.

If both boards and Madrona’s stockholders give the acquisition a green light, then begins the hard part of actually merging the two healthcare providers, said Nancy Steiger, Regional CEO and Chief Mission Officer of PeaceHealth Whatcom Region.

“The bumps in the road will be after acquisition,” Steiger said. “It’s integrating cultures that is the hard part. It’s like two families coming together.”

Both organizations hold a strong market presence and together they would have an even stronger ability to improve healthcare. But what if they just don’t get along?

“As two large organizations come together to form a larger organization, that requires clarity and a shared culture that manages that complexity in a way that is compelling,” Laine said. “That’s why we’re spending so much time and energy on this.”

On the outside, PeaceHealth and Madrona are two very different organizations that have very different histories. But through the discovery phase, both Steiger and Laine said they have found that the organizations have two very similar missions.


Saint Joe’s: the local hospital

Saint Joseph Hospital has a long history in Whatcom County. It first started in 1891 with two members of the Sisters of Peace from New Jersey who set out to establish a hospital in the fishing and lumber town of Fairhaven. They opened the first hospital in the county: a two-story building with 30 beds and a staff of seven.

By 1901, the hospital was in need of more space. So the Sisters moved it to a larger, 53-bed facility on Forest Street where it stayed until the current site on Ellis Street was built in 1966.

Once the hospital moved to its current location, it began expanding and adding services as the population around it grew. In 1989, Saint Joseph Hospital purchased Saint Luke’s General Hospital on Chestnut Street and began operating both campuses.

Now the hospital is the second largest employer in the county, with 2,161 employees, an average 400 regular volunteers, and 253 beds. Since 2000, the hospital has made the list three times for the 100 Top Hospitals in the U.S., as ranked by Solucient, a healthcare-quality information firm.

Saint Joseph Hospital is operated as a Catholic, not-for-profit institution and is a part of PeaceHealth, which has hospitals in Washington, Oregon and Alaska.


Madrona: the independent physicians

Madrona Medical Group formed in 1995 as a group of independent physicians already operating in Whatcom County. The group opened their 70,000-square-foot facility on Cordata Parkway in 1999, thus consolidating their services under one roof. They now have three buildings as part of their campus.

Laine, who has been Madrona CEO since its inception, said that the group started with the conscious intent of moving beyond the aggregation of individual practices and more toward creating a better healthcare system.

“We’re a much larger organization than we were when we began,” Laine said, adding that growth in an organization often comes with growing pains. “I think part of the growing pains are that with increased size comes increased complexity, and with increased complexity comes the need for cogency and awareness of what it is that you’re trying to do.”

After 13 years of operating in Whatcom County, the physician-owned healthcare provider now employs approximately 500 people and has gained a reputation as a family-oriented group.


Merging forces

One of the points that stood out during the discovery phase was the great potential for combined services between the two organizations. Since each group formed at different times and under different healthcare demands, not many of their medical services overlap.

“We have much of what they don’t and visa versa,” Laine said. “We have all of the medical specialties, but we’re light in surgery. Saint Joe’s Medical Group has a more replete surgical department. We’re kind of like two halves of a coin that come together.”

Laine said that Madrona would benefit from using the hospital’s advanced technology, such as electronic medical records. Steiger said the hospital would benefit from adding Madrona’s primary care physicians to the larger group.

“We have approximately 40 physicians in our medical group now,” she said. “This will take us up to about 100 physicians.”

Nothing is certain yet, though. Both parties expect a deal to be reached by the end of January. Assuming the deal is approved, Steiger said the final contract could be signed as soon as March and the whole process wrapped up by July.

In the end, what both groups say they hope to achieve through this merger is better healthcare for more residents of Whatcom County.

“This won’t be easy — there’s a lot of work that needs to be done,” Laine said. “But that’s why we’re spending some serious time and energy trying to really consider this carefully and render it well so that our patients benefit, our community benefits. Because if they’re not the beneficiaries of this, why do it?"

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