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Three Buffalo institutions became one hospital system today in a long-awaited merger that will reshape the local health-care market without immediate changes in patient care.

After completing final steps Tuesday with state officials, Children's Hospital, Buffalo General Hospital and Millard Fillmore Hospital officially begin operating as CGF Health Systems today. The merger also includes DeGraff Memorial Hospital in North Tonawanda by finalizing its marriage with Buffalo General.

Doctor privileges remain unchanged, with area physicians continuing to practice at the same hospitals where they have been practicing.

The new hospital network creates a Goliath in the local labor market -- Buffalo's largest nongovernment employer with more than 12,000 employees.

There are no immediate changes in hospital eligibility or insurance payments for subscribers of local health-maintenance organizations or other insurance plans.

The merger could have a long-term impact on the business side of local health care as the new organization negotiates deals with insurance companies. Contracts that insurance companies have with the hospitals remain in effect.

Independent Health's contracts with the hospitals expire Jan. 1. Officials at Blue Cross and Blue Shield of Western New York declined to comment on their contract status with the hospitals.

Buffalo already enjoys some of the lowest health-care costs in the nation compared with other cities. Creating a more efficient hospital network will help maintain that edge for local businesses, said John E. Friedlander, president and chief executive officer of CGF Health Systems.

"I think what we can expect in this economy is our health system
is going to be able to hold the line on costs, at the least," Friedlander said. "What we are trying to do is maintain that competitive position for businesses so that health care does not become a cost that they have to overcome."

The merged organization is budgeted to eliminate about 850 of its 1,860 total hospital beds and save $214 million by 2002.

Some 400 to 500 jobs are scheduled to be eliminated in coming years. Additional jobs could be cut because of "market forces," which Friedlander described as trends toward shorter patient stays. Hospital administrators say they hope to eliminate most of the jobs through attrition over the next three years.

About 50 management employees already have lost jobs. Additional layoffs will most likely occur in small increments of less than 50, Friedlander said.

The merger is just part of the story in local hospital consolidation. Similar changes are shaking up the Niagara County health-care market. A proposed consolidation of Niagara Falls Memorial Medical Center with Mount St. Mary's Hospital in Lewiston has drawn wide public interest and opposition from citizens and doctor groups.

Local Catholic hospitals, including Kenmore Mercy, Sisters Hospital, Our Lady of Victory and St. Joseph Hospital, are affiliating, but not merging.

CGF and the Catholic hospitals provide about three-quarters of Erie County's patient care, with Erie County Medical Center, Veterans Hospital and Roswell Park Cancer Institute providing most of the rest.

Although rumors are flying about the new system possibly closing a hospital or converting a hospital to a nursing home, no decisions have been made, officials said.

"What we are going to do is rely on the physicians' expertise, as long as it's clinically sound and economically sound, to direct us as to how they'd like to see services provided," Friedlander said.

Dr. Michael Noe, executive vice president of the medical staff at Buffalo General, said he looks at the merger not in terms of shrinking the market, but improving the hospitals.

"I would hope that as a result of the changes taking place in both health systems, the choice that consumers would have is among facilities that are stronger," Noe said. "Institutions that would have had trouble surviving alone will be better and stronger."

Similar mergers are happening in other cities as hospitals grapple with a growing number of empty beds in a health-care industry tilting toward more outpatient care and residential geriatric care.

Contracts with three different unions covering 19 separate bargaining units have all been assumed by CGF Health Systems.

Twenty of the 25 clinical department heads, positions such as chiefs of surgery, cardiology and neurology, have been filled. All leadership positions are being filled with interim appointments of up to two years.

All three hospitals have teaching and residency programs with the University at Buffalo.

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