The state has given its approval to Pen Bay Healthcare becoming part of MaineHealth.

“Pen Bay Healthcare received very good news from Brenda Harvey [Commissioner of the Maine Department of Health and Human Services] yesterday afternoon,” according to a statement from Pen Bay Healthcare. “She called to inform us that she has signed both the Certificate of Need and the Certificate of Public Advantage for Pen Bay’s membership in Maine Health. Therefore, we now have full state approval.”

Pen Bay stated that it hopes to have approval from the Federal Trade Commission by the end of October. The FTC is scrutinizing hospitals more than it did under previous presidential administrations and has rejected some proposed mergers.

“This puts us on track to effect full membership by the end of this calendar year,” according to the Pen Bay statement. “This is a major positive step forward for Pen Bay Healthcare, our community and our staff.”

The state DHHS staff had recommended the approval be granted, concluding that the advantages to Pen Bay Healthcare becoming part of MaineHealth outweighed drawbacks.

DHHS held a public hearing June 28 at the Samoset Resort to hear the presentation from the two organizations, as well as to receive comments from the public.

Recommended conditions placed on the merger include a requirement that the organization provides reports for three years on the savings that result from the merger, and report improvements in medical outcomes as a result of the merger. Pen Bay Healthcare must also realize the $1 million in administrative savings during the first 36 months as a condition of the state approval.

Another condition is that all physicians employed by Pen Bay Healthcare must accept all patients for six years without regard to insurance or lack of insurance or ability to pay. Pen Bay Healthcare will also be required to have its annual budgeted operating margin at or less than 3 percent of its total operating revenue during the next six years.

Pen Bay will also be limited in increasing its prices to no more than 3 percent unless it receives another certificate of need approval for a project that would exceed the 3 percent.

The Pen Bay Healthcare incorporators voted 143-6 earlier this year for their organization to become a subsidiary of MaineHealth. The trustees of both organizations had earlier approved the plan.

Pen Bay Healthcare is the parent corporation of Penobscot Bay Medical Center, Knox Center for Long Term Care, Kno-Wal-Lin Home Care and Hospice, Quarry Hill, and most local physician offices. MaineHealth is the parent corporation of hospitals including Maine Medical Center in Portland, Miles Memorial Hospital in Damariscotta and Waldo County General Hospital in Belfast.

Under the merger, the Pen Bay Healthcare trustees would be elected by the MaineHealth board. Pen Bay Healthcare would have one representative on a 16-member MaineHealth board.

The Pen Bay Healthcare trustees would have authority over the policies of the local health care systems but the MaineHealth board would have authority to set the annual budget, adopt strategic plans and purchase equipment in excess of $500,000.

Despite the overwhelming approval by incorporators, some of them asked that the incorporators be kept on in an advisory role to the local trustees including the nomination of local trustees.

Under the proposed merger, Pen Bay Healthcare could withdraw within two years for any reason. After that, Pen Bay Healthcare could only separate from MaineHealth if MaineHealth were to be sold to a for-profit corporation or if Maine Medical Center withdrew from MaineHealth. If Pen Bay Healthcare withdrew in the first two years, it would have to repay any MaineHealth investment.

Under the agreement, MaineHealth would contribute $3 million to Pen Bay Healthcare for electronic medical records. Another $25,000 to $50,000 would be spent by MaineHealth for communications upgrades so that administrators and health care staff could be in better contact with the Portland headquarters. Pen Bay Healthcare’s annual dues to MaineHealth would be 0.45 percent of net operating revenues, which amounts to $675,000 in the first year, but Pen Bay Healthcare officials have said that cost would be more than offset by savings in employee benefits and legal and insurance costs.