Cooper University Health Care, Cape Regional Health System plan to merge

Cooper, based in Camden, N.J., is the much larger system, and Cape Regional said the market is becoming tougher for smaller systems. Analysts expect more smaller systems will be seeking partners.

Cooper University Health Care and Cape Regional Health System, two systems based in the highly competitive southern New Jersey market, have announced their plans to merge.

The two systems unveiled their planned merger Dec. 14. Cooper and Cape Regional said they hope to finalize a definitive agreement in March 2023. The deal would require regulatory approval, and the systems said they hoped that would occur in the first quarter of 2024.

Cooper Health is the much larger of the two systems, with $2 billion in revenue. Cooper operates its 635-bed flagship hospital in Camden, N.J., just across the river from Philadelphia, along with an outpatient surgery center, three urgent care centers and more than 100 ambulatory offices. The system includes the MD Anderson Cancer Center at Cooper.

Cape Regional, based in Cape May County, NJ., operates the Cape Regional Medical Center, a 242-bed hospital, three urgent care centers and a host of healthcare sites.

Garry Gilbert, chairman of Cape Regional Health System’s board of trustees, acknowledged the more difficult environment for smaller systems as a factor in merging with Cooper.

“As it becomes more and more challenging for smaller health systems to operate independently, merging with Cooper made the most sense as we share the same commitment to the communities we serve and to providing the highest quality care to our patients,” Gilbert said in a statement.

An expanding system

Cooper Health has undertaken ambitious expansion plans recently.

Cooper officials announced in September a $2 billion project to dramatically revamp its campus in Camden. The project involves building three new towers with 100 patient rooms and adding more teaching space.

Now, Cooper said the merger with Cape Regional fits with its plans to expand services.

George E. Norcross, III, chairman of Cooper Health’s board of trustees, said in a statement, “This merger of two trusted health care organizations will benefit tens of thousands of residents and visitors to Cape May County and strengthen the overall health care system in South Jersey.”

With the merger, the consolidated organization will have two hospitals with more than 900 beds, $2.2 billion in combined annual revenue, more than 900 physicians, and 130 ambulatory locations in eight counties.

Projecting more mergers

The pace of hospital mergers has been slower than normal during the COVID-19 pandemic, but more mergers and acquisitions have been announced in recent months. Analysts have said they expect to see more mergers in the coming months, with smaller hospitals and systems looking to find partners with larger systems.

In an interview with Chief Healthcare Executive, Ash Shehata, KPMG’s national sector leader for healthcare and life sciences, said smaller and mid-sized systems are likely to seek partners to sustain operations and ensure access to specialty services.

“If we believe those specialty practices are being kind of bought out by payers and private equity, they're going to have to find a way to enter into that market,” he said. “And essentially, they're paying premiums now to retain those physicians. So I think that's going to move a lot of those organizations that are kind of in that middle tier to potentially join larger affiliations.”

Anthony Mazzarelli, co-CEO of Cooper, noted the potential of expanding cancer treatments in southern New Jersey.

“By expanding our current working relationship with the Cape Regional team, we will be able to bring additional advanced cancer and specialty health care services to local residents close to where they live,” Mazzarelli said in a statement.

Anu Singh, managing director of partnerships, mergers and acquisitions at Kaufman Hall, a healthcare consulting firm, told Chief Healthcare Executive in October that some hospitals are going to be seeking partners out of necessity.

“For some it will be a lifeline conversation, for others it may be a strategic tipping point,” Singh said. “I think we’re going to see financial tipping points for need, I think we’ll see some strategic tipping points for investment.”

'Strong working relationship'

With the merger with Cape Regional, Cooper expands its presence in South Jersey, where there’s no shortage of healthcare providers. Penn Medicine has a partnership with Virtua Health, and Jefferson Health is also in the market, among others.

Joanne Carrocino, president and CEO of Cape Regional, said in a statement that the two systems “have had a strong working relationship for many years.”

Cooper has helped staff Cape Regional’s intensive care unit and provided telemedicine services, she said.

While more hospital mergers and acquisitions are being announced recently, the Federal Trade Commission has opposed some hospital deals, prompting the systems to abandon the deals. Federal regulators have looked closely at hospital mergers, particularly those involving systems in overlapping markets.

Cooper and Cape Regional are both in southern New Jersey but are serving different areas. Cooper serves the suburbs surrounding Philadelphia, while Cape Regional is concentrated on New Jersey’s southern tip, serving communities along the Jersey Shore.

Kevin O’Dowd, co-CEO of Cooper, described Cape Regional as “a distinguished health system of high-quality clinical outcomes and commitment to their community.”

“We look forward to working with our future colleagues at Cape Regional to build upon this tremendous legacy of service to residents of the Cape May region,” O’Dowd said in a statement.

While Cooper struggled financially years ago, the system has managed a significant turnaround in recent years. In November, Cooper’s credit rating was upgraded by S&P Global Ratings from “BBB+” to an “A-”, the highest in the system’s 135-year history.

S&P noted that Cooper “has remained focused on increasing market share” and is seeing gains from “physician recruitment; rising tertiary transfers from community hospitals … and ambulatory expansion in the suburbs.”