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Clarian sizing up south side: Agreement with Morgan Hospital could lead to development projects in St. Francis' back yard

February 27, 2006

The largest hospital network in Indianapolis will start stretching its reach once again next month, this time south of town, where it could challenge the dominance of St. Francis Hospital & Health Centers.

Clarian Health Partners is embarking on a five-year development agreement with Martinsville's Morgan Hospital & Medical Center that could place more building projects on Clarian's already crowded construction agenda.

The two systems plan to focus their relationship on improving patient care and research, but representatives of both say hard hats and bulldozers also may lie over the horizon.

"I don't think anybody's thinking about a hospital, but this is pretty early on," Clarian spokesman Jon Mills said.

Indeed, the Martinsville hospital may ask Clarian for help building a 77-bed patient tower it's had on the drawing board for a couple of years, Morgan president and CEO Tom Laux said. It also might work with Clarian to develop a 35-acre plot of land it owns in the western edge of Johnson County.

"We're very enthusiastic about the possibilities," he said, noting that the deal will help Morgan's physician recruitment, among other benefits.

Another growing market

Clarian is planting its next flag on fertile territory, according to local health care experts.

Indianapolis suburbs have been spreading south and merging with the subdivisions growing north from Mooresville and Franklin, said Bruce Gordon, vice president of leasing and brokerage for Indianapolis-based Bremner Healthcare Real Estate.

The growth creates a population base filled with people covered by private insurance, which provides better reimbursement than government programs like Medicaid or Medicare.

Gordon said the market has seen a lessdense version of the growth spurt that hit southern Hamilton County several years ago.

Even more growth may reach the south side, especially if a planned expansion of Interstate 69 makes its way through the Mooresville area, noted Bill Thompson, a managing partner at Indianapolis law firm Hall Render Killian Heath & Lyman, which specializes in health care.

Analysts say the area already benefits from convenient access to interstates 65 and 465.

St. Francis-which has hospitals in Beech Grove, on the southern border of Marion County and just up the road from Martinsville in Mooresville-already has captured most of the better-reimbursing advanced care in that market. Called tertiary care, service lines include high-end cancer treatment as well as cardiac and vascular care, for which St. Francis opened a $70 million center last year.

Major Hospital in Shelbyville sends St. Francis $10 million in cardiology business each year, said Major CEO Tony Lennen.

"I think most people in our part of the state really don't feel ... they have to go downtown or to the north side [of Indianapolis] for high-end medical care," Lennen said.

Thompson thinks the south side's favorable demographics make it tempting for another tertiary-care provider to challenge St. Francis.

And when it comes to development, Lennen said Clarian casts a long shadow.

"I think everybody fears where Clarian's next big move is," he said.

If Clarian does plant deep roots on the south side of Indianapolis, where its main presence is limited to a Methodist Medical Plaza, a less-than-friendly competition will play out.

Layers of animosity

Morgan and St. Francis faced off in federal court earlier this year over a moratorium limiting health care development in Morgan County, where St. Francis has invested more than $20 million in its Mooresville hospital.

The two hospital systems ended a clinical affiliation in 2002. They now have no relationship, but Morgan does transfer cases to St. Francis if the doctor or patient requests it, Laux said.

On the other side, St. Francis President Robert Brody has criticized Clarian over its recent suburban expansion.

The network opened its $170 million Clarian West Medical Center in Avon in 2004, then spent $285 million on the Clarian North Medical Center in Carmel, which debuted late last year.

Both hospitals are for-profit, joint ventures owned partially by physicians. Brody has said the additional beds are unnecessary, and he believes they hurt not-for-profit competition by grabbing profitable business and leaving behind less-desirable emergency care.

Last month, Clarian revealed plans to build another joint-venture hospital, this time with the Arnett HealthSystem physician group in Lafayette. There it will compete with a hospital network owned by the Mishawaka-based Sisters of St. Francis Health Services Inc., which also owns St. Francis in Indianapolis.

Needless to say, the prospect of another Clarian expansion doesn't generate warm sentiment from St. Francis executives. Asked if he was concerned about Clarian, regional CFO Jay Brehm sidestepped the question.

"We're concerned about the health care system in the state of Indiana and nationally," he said, declining to elaborate.

An evolving agreement

Representatives of Clarian and Morgan see several possibilities for their partnership, but they have no definite plans.

"We haven't figured this out; that's why we have a five-year agreement," Morgan's Laux said. "Over the next five years, we'll be exploring ways we can work together."

The hospital systems most likely will team up in cardiology, women's health and pediatric care involving Clarian's Riley Hospital for Children, Mills said.

"We're looking at professional and clinical partnerships that will capitalize on the strengths of both organizations," he added.

Morgan may see an increase in clinical trial research, and Laux hopes to tap the fellowship and training programs offered by Clarian hospitals, a move he thinks will help physician recruitment.

Laux foresees Morgan developing similar care protocols and standards, which will make patient transfers smoother.

The Martinsville hospital may send more tertiary-care patients to Clarian hospitals, and it definitely will increase the trauma cases that head downtown to the network's Methodist Hospital, which has one of two Level I trauma centers in the state, Laux said.

Morgan even plans to make sure its helipad meets all the specifications Clarian's Lifeline helicopters need.

"Whatever resources Clarian has are now at least potentially available for local residents through Morgan Hospital & Medical Center," he said.
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