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MedStar will fund major upgrade at Southern Maryland Hospital

Wednesday - 8/1/2012, 5:53pm  ET

MedStar Health will spend "well over $100 million" over the next five years to upgrade Southern Maryland Hospital Center once its purchase of the 35-year-old facility closes later this year, executives said Monday after announcing the deal.

MedStar's plans include a new outpatient center on the hospital campus off Surratts Road in Clinton, as well as extensive renovations to the main hospital, Southern Maryland CEO Michael Chiaramonte said in an interview. Hospital officials hope to seek regulatory approval for the work in 2013.

An enhanced Southern Maryland Hospital Center could compete directly with a proposed regional medical center being planned by Dimensions Healthcare, Prince George's County Executive Rushern Baker, Gov. Martin O'Malley's administration and the University of Maryland Medical System. They hope the medical center would anchor a redeveloped, financially stable Dimensions system.

The new center's success depends in part on luring new patients from all of southern Maryland to central Prince George's County for complex, high-cost medical needs. Columbia, Md.-based MedStar wants to do the same thing by enhancing midlevel services at Southern Maryland Hospital and providing a regular referral path from St. Mary's Hospital in Leonardtown, Md., which it affiliated within 2009, and to high-level care at District-based Georgetown University Hospital and Washington Hospital Center.

Chiaramonte, who will stay on as president under MedStar, said he appreciates the University of Maryland system's attempts to help improve health care delivery. But he said plans for MedStar's upgrades at Southern Maryland are already well developed, putting Southern ahead of all of its competitors.

"This arrangement will afford the residents of the county, and the counties below us, higher levels of care much faster," Chiaramonte said. "I think it will be years before that hospital takes shape, if it does at all, and I think this is our best moment and opportunity to quickly bring tremendous levels of service, physicians, talent, clinical trials and clinical rotations into Prince George's County."

Before Monday's announcement, UMMS Senior Vice President John Ashworth said the proposed regional medical center is already taking into account expected development projects, including Southern Maryland's hopes for expansion funded by a new owner. But if MedStar is successful in driving midlevel care to Clinton and sending the most vexing cases to its major facilities in D.C., the new proposed hospital in central Prince George's could suffer.

MedStar CEO Ken Samet downplayed any conflict between the public-private partnership to fix Dimensions and his system, pledging to work with politicians to provide the best care.

"The collective objective of all involved must be to provide care within the most optimal use of resources given the future economic realities of health care in our country," Samet said.

The 100,000-square-foot outpatient pavilion at Southern Maryland will include major cancer care and neuroscience services. The hospital renovations will involve upgrades to the emergency room, critical care unit and lobby spaces, Chiaramonte said.

After Southern Maryland solicited bids to buy the hospital, MedStar beat out 14 other companies that initially responded, Chiaramonte said. Southern Maryland will transition into a nonprofit subsidiary of MedStar after standing for years as the state's only for-profit hospital.

The sale constitutes a lucrative exit for the family of the hospital's founder, Dr. Francis Chiaramonte, who established the facility in 1977 after seeing a lack of health care services in Washington's southern suburbs and rural southern Maryland.

Terms of the sale were not disclosed, but Southern Maryland has consistently turned a profit, thanks to a relatively high percentage of commercially insured patients and a relatively low number of uninsured or Medicaid-reliant patients.

MedStar also purchased several aligned businesses in the transaction: Southern Maryland Home Health Services Inc., Better Life Home Medical Inc., Medical and Surgical Clnics of Southern Maryland Inc., three physician office buildings, an asthma and allergy center and physician-support companies.

MedStar's promise to spend heavily at Southern Maryland was a major reason it won the bidding contest, Chiaramonte said. Thanks to minor partnerships dating back decades, he said, "in some ways, MedStar was the offer to beat."

The Chiaramonte family will retain the Colony South Hotel near the hospital, a townhouse complex and "significant real estate" in the area, Michael Chiaramonte said.

Unsuccessful finalist bidders were a joint venture created by Duke University and LifePoint Hospitals Inc. and RegionalCare Hospital Partners, a hospital management company from Tennessee.

UMMS had agreed to be a local partner to RegionalCare had it won the bid to buy the hospitals, UMMS spokeswoman Mary Lynn Carver confirmed.