Note: The current headline updates a previous headline that inaccurately suggested that the deal by Erlanger to take over Murphy Medical Center was already signed and approved. The boards of both hospitals will consider the agreement to combine the hospitals next week.
Change of control agreementView
Chattanooga's biggest hospital network plans to acquire its first hospital outside of Tennessee as it continues expanding its footprint across the Mid-South region and nearly double its patient revenues in just over five years.
Erlanger Health System has agreed to take over the Murphy Medical Center in western North Carolina, pending approval next week of the boards for both Erlanger and Murphy Medical. Under the change of control agreement released last week, Erlanger will assume control by April 1 of the 25-bed hospital and five medical office buildings along with management of more than 400 hospital employees.
J. Michael Stevenson, CEO and chairman of Murphy Medical Center for the past 29 years, said Erlanger should bring medical staff and connections to Murphy.
"The best interest for us is to become part of a bigger system with everything happening in rural health care these days," Stevenson said. "We're not at risk of closing or going out of business, but our strategic plan concluded that we need to be a part of a bigger system."
Erlanger President Kevin Spiegel said the deal should both improve medical services for Murphy Medical and expand the coverage of Erlanger — the prime trauma and tertiary-care hospital in the Chattanooga region.
Last year, Erlanger added helicopter service to North Carolina with one of its six Life Force helicopters stationed at the Western Carolina Regional Airport in Andrews, N.C., and Erlanger began providing hospitalists at Murphy Medical.
Spiegel said Murphy, N.C., is part of the Chattanooga regional market, and bringing Murphy Medical Center into the Erlanger health network should provide more surgeons and other specialists to Murphy and funnel more trauma and higher-acuity care patients to Erlanger's main campus in Chattanooga.
"These are patients who live in our market," Spiegel said. "They have a road [from Murphy] to Asheville, N.C., except that when the weather is bad. The only way they can get [higher- level trauma or tertiary medical treatment] then is to come to Chattanooga."
Carolina Health has managed Murphy Medical for the past six years, but Spiegel said "they have been unsuccessful in recruiting more doctors to that town."
"We're an hour-and-a-half drive from Murphy," Spiegel said. "It's so much easier for one of our doctors to drive to Murphy and to serve this community, and that's what we're committed to do."
About Murphy Medical Center
› Location: Murphy, N.C.
› Owner: Started by the town of Murphy in 1979 with a government hospital authority board, the hospital was converted to a private, nonprofit ownership structure in the early 1990s
› Staff: More than 400 employees, headed by CEO J. Michael Stevenson who will retire after Erlanger takes over.
› Size: Licensed for 57 acute-care hospital beds, as a critical care access hospital, Murphy Medical operates 25 hospital beds.
› Affiliated facilities: Murphy Medical previously owned a 134-bed nursing home that was sold last year to Century Care Management Inc., of Cary, N.C.
› Current manager: Carolinas HealthCare System in Charlotte, N.C.
› Market area: 45,000 residents in Cherokee, Graham and Clay counties in western North Carolina
Source: Murphy Medical Center
"And why wouldn't Murphy want access to our neurosurgeons, our neonatologists and our maternal fetal medical that a small rural hospital can't afford to have?" Spiegel said.
Last October, the Murphy Medical Center Nursing Home sold its 134-bed nursing home. But Erlanger will take over the hospital and medical offices, assuming both the property and all of its debt.
"It [Murphy Medical Center] has cash, and if it generates more cash it will be reinvested in the community," Spiegel said.
Unlike Erlanger's unsuccessful attempt to turn around Hutcheson Medical Center hospital in Fort Oglethorpe as an outside manager from 2011-2013, Erlanger will acquire all of the assets and liabilities of the Murphy hospital and both manage and own the facility. The Erlanger board will become the governing authority for Murphy Medical, although a local board will remain in Murphy as a community advisory board.
"At Hutcheson [which ultimately failed and generated a costly legal battle over its costs], Erlanger did not have total control, and you need that to make sure you are successful," Spiegel said.
Erlanger has emerged as a leading regional player by building a fleet of Life Force helicopters, and Spiegel said other acquisitions of rural hospitals are possible.
Last month, Erlanger got approval from Tennessee regulators to relocate and upgrade its hospital facilities in the Sequatchie Valley by building a new 25-bed hospital in Dunlap, Tenn., and replacing the aging Erlanger Bledsoe Hospital with a new $4.3 million emergency center in Pikeville, Tenn.
Erlanger previously took over the former Red Bank Community Hospital, now Erlanger North, and completed a $50 million expansion last year of its Erlanger East campus in East Brainerd. Erlanger also is partnering with Acadia Healthcare Co., to build a $25 million, 88-bed mental health hospital in Chattanooga and is expanding both its Children's Hospital and its Heart and Lung Institute.
Although Erlanger operated Hutcheson hospital in the past and now maintains two helicopters in North Georgia, the acquisition of Murphy Medical Center would be Erlanger's first for a hospital outside of Tennessee. But it may not be the last, Spiegel said.
"I could see Erlanger looking at other acquisitions that make sense for our region because we're the only regional, academic, tertiary medical center in the entire region," he said.
Erlanger already has grown to be the largest employer in the Chattanooga region with more than 7,000 employees, and the hospital expects to add another 150 jobs this year after netting 100 additional jobs in 2017, Spiegel said.
"Our economic growth has been unprecedented, and Erlanger is a real economic engine for this region," he said. "When you look at the physicians and others we are recruiting, it makes a real difference in those who can afford to send their children to schools such as McCallie, Baylor or GPS or buy higher-priced homes in our region. We are adding more cardiologists, more cardiac surgeons, more GI doctors, more hospitalists and others."
Erlanger has grown patient revenue 15 percent a year for the past four years even though the overall hospital market in Chattanooga has been essentially flat, Spiegel said.
"We're seeing the largest growth in the regional market," he said. "Part of it is our helicopter strategy. Part of it is offering our unique services to adults and children so that you no longer have to leave the market and go to Atlanta, Birmingham or Nashville to get that care."
When Spiegel was named CEO of Erlanger in April 2013, Erlanger's annual net patient revenue was $610 million. This year, Erlanger expects to top $1 billion in revenue for the first time.
With the addition of Murphy Medical Center, an expanded Children's Hospital and Heart and Lung Institute on Erlanger's main campus and the building of a new Dunlap hospital, Erlanger is forecasting it could reach $1.4 billion in revenues in the next year or two.
Contact Dave Flessner at email@example.com or 423-757-6340.
› The board of commissioners of the town of Murphy Hospital Authority, the board of directors of Southwestern Health System, Inc., and the board of directors of Murphy Medical Center, Inc. will vote on the proposed merger of Murphy Medical into the Erlanger Health System on Jan. 23.
› The Erlanger trustees’ budget and finance committee will consider the acquisition on Jan. 22 and the full Erlanger board is scheduled to vote on the deal on Jan. 25.
› If approved, Erlanger will begin to assume management of Murphy Medical and take over the hospital facility and assume all assets and liabilities on April 1.