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Bel Air-based Upper Chesapeake Health System and the University of Maryland Medical System are negotiating for a potential expanded relationship, one that could lead to University acquiring an ownership stake in Upper Chesapeake, which owns and operates Harford County’s two hospitals.

Sources say the talks between the two private, nonprofit companies have been ongoing for at least a year, but an Upper Chesapeake official says the discussions have been wide ranging and wouldn’t necessarily lead to a merger.

Other sources say that University has expressed an interest in acquiring a substantial ownership interest, though it wouldn’t become a majority owner.

Any corporate change involving Upper Chesapeake, a private, nonprofit company, could have significant impact in Harford County, not only in terms of health care services, but economically, as well.

Upper Chesapeake is Harford’s largest private employer with more than 3,000 full- and part-time employees and generates more than $323 million a year in revenue from its operations. Its hospitals, Upper Chesapeake Medical Center in Bel Air and Harford Memorial Hospital in Havre de Grace, are a major financial lifeblood of both towns, as hundreds of millions of dollars more are generated by services and businesses directly and indirectly linked to them.

And, unlike many Maryland hospital operators who are reeling from the bad economy, including University, Upper Chesapeake is profitable. Last year, it had a net operating margin of $8,385,000, according to figures the company supplied to The Aegis Tuesday.

Dean Kaster, Upper Chesapeake’s senior vice president of corporate strategy and business development, said Monday he couldn’t comment about any negotiations involving University, but he pointed out Upper Chesapeake and University have an existing clinical arrangement that they have talked about expanding.

“We have existing partnerships with University in several clinical areas that we are looking to expand,” Kaster, who speaks for the organization on corporate matters, said.

In a lengthier phone interview Tuesday afternoon, Kaster said Upper Chesapeake’s existing relationship with University goes back several years and “is one of several we have with other health care organizations.”

In the most visible part of the relationship, a University subsidiary, Maryland Medical Emergency Network, provides physician staffing for the emergency rooms at UCMC and HMH, which last year had 92,000 patient visits. Kaster said the arrangement has been in effect for about 18 months.

Kaster said some Upper Chesapeake cancer patients are able to access clinical trials through a national organization that works through academic hospitals such as University’s flagship University of Maryland Medical Center in Baltimore, one of two teaching hospitals in Maryland. The two Harford County hospitals are also linked to an emergency stroke treatment network, the Brain Attack Team, run from the University of Maryland Medical Center.

“We have been exploring other areas where both would benefit mutually from expanded relationships,” Kaster said Tuesday. “These talks have been of a preliminary nature. There’s been no final decision on what direction the partnership will go.”

University Medical System President and CEO Robert Chrencik did not return a phone message left with his secretary Monday. Dr. Roger Schneider, Upper Chesapeake’s chairman, did not return a message left at his Bel Air office Tuesday.

For Upper Chesapeake, the payoff from a merger, one source said, would be retaining control of its facilities while getting an infusion of capital at a time its two hospitals are operating near capacity and need to expand. But any such deal also could mean Upper Chesapeake would be subsumed into University’s regional system of six acute and three specialty hospitals.

There would also be outside hurdles to clear.

Kaster confirmed about 20 percent of Upper Chesapeake is owned by St. Joseph Medical Center of Towson and its national parent company, Catholic Health Initiatives, which put up some of the money Upper Chesapeake used to develop its flagship Bel Air campus almost a decade ago. One source said University would have to acquire the St. Joseph interest first. Assuming a St. Joseph buyout can be worked out, a University-Upper Chesapeake merger might also require state regulatory approval.

The centerpiece of Upper Chesapeake’s Bel Air campus is Upper Chesapeake Medical Center, a 200-bed acute care hospital that opened in 2000 and recently underwent expansions to its emergency facilities, maternity center and intensive care unit. Earlier this year, the company completed a $50 million combination parking garage and medical office building on its Bel Air campus in partnership with a private developer.

Upper Chesapeake’s Harford Memorial Hospital is a 110-bed facility in downtown Havre de Grace that has an aging physical plant. Upper Chesapeake has flirted with the possibility of building a replacement hospital for Harford Memorial near the I-95/Route 155 interchange, where it bought 30 acres last year.

Even in a down economy, Upper Chesapeake officials have said they expect continued growth in patient volumes from western Cecil County and because of BRAC. The two Upper Chesapeake hospitals admitted nearly 25,000 patients last year, 15 percent more than in 2007. The company had nearly 150,000 outpatient visits, also a 15 percent increase.

According to its main Web site, the University system has 14,800 employees, more than 1,700 licensed hospital beds, handles 83,000 patient admissions annually and generates $2 billion in gross patient revenue.


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