SANTA ROSA — After more than two years of negotiations with a number of suitors, Santa Rosa-based Redwood Regional Medical Group, one of the most established and largest physician-owned groups in the North Bay, agreed to merge a majority of its operations into St. Joseph Health's Annadel Medical Group, bringing together two of Sonoma County's most prominent health care providers. 

The deal, finalized on Monday and effective Tuesday, caps off long-running speculation from health care insiders that Redwood Regional, which specializes in oncology and radiation, would merge or partner with a larger entity, affording the physicians more stability in a quickly changing landscape that has seen significant consolidation following the Affordable Care Act, officials said.

Financial terms of the agreement were not disclosed.

"There is a national trend toward the integration of health care services," said Wayne Keiser, MD, who served as co-CEO of the medical group with Robert Feiwell, M.D. "We're a part of that trend."

Reduced reimbursement rates from both Medicare and insurance carriers, along with a systematic shift toward more coordinated care are driving the trend, and health systems large and small are being financially incentivized to become more efficient and keep costs down, officials said.

"With us being completely independent and charting our own course, there was economic pressure," Dr. Feiwell said.

At the same time, the deal marks the single largest gain for Annadel Medical Group, part of St. Joseph Health's physician foundation, St. Joseph Heritage Healthcare. Annadel had already been the fastest-growing medical group in the North Bay, reaching 70 physicians just last week since it was started by Dr. David Smith and eight other physicians in 2008.

Now, after acquiring a majority stake in Redwood Regional, the group has grown to 106 total providers, including 89 physicians, putting it on par with other large-scale physician groups in the North Bay. It also gives Annadel additional specialty services and a larger physician footprint into additional North Bay counties, including northern Marin, Lake and Mendocino.

"They actually complement us really well," said Bob Just, regional chief operating officer of St. Joseph Heritage Healthcare, which oversees St. Joseph Health-affiliated physicians in Sonoma, Napa and Humboldt counties.

A total of 19 of Redwood Regional's 31 physicians will join Annadel, while the outpatient imaging studies and oncology treatment provided by Redwood Regional will continue through Santa Rosa Memorial Hospital, officials said. Twelve radiologists who have been part of Redwood Regional have formed a new group, Redwood Radiology Group, and will continue to provide diagnostic and interventional radiology throughout the area.

"Health care reform is accelerating partnerships," said Todd Salnas, president of St. Joseph Health in Sonoma County. "We're looking to have better outcomes with less waste. And great specialty care is an obvious asset."  Mr. Salnas also said St. Joseph Health would consider further expansion into counties where it has not had a presence.

Signs of the change became more evident earlier this year when Wayne Fairchild, then CEO of Redwood Regional, left his position to join Novato-based Prima Medical Group.

St. Joseph Health, which operates Santa Rosa Memorial and Petaluma Valley hospitals and Queen of the Valley in Napa, emerged in recent months as the likely match, although talks of Redwood Regional's alignment with a larger entity have been ongoing for nearly two years.

Before St. Joseph Health, the medical group had been in talks with San Francisco-based health information technology giant McKesson, Dr. Keiser and Dr. Feiwell said. Last year, a McKesson spokeswoman told the Business Journal that the IT company did indeed have talks with Redwood Regional, but nothing materialized.

"We had choices," said Dr. Keiser, who has been with Redwood Regional since 1977. He added that while the group had productive discussions with other large-scale organizations, St. Joseph Health was both familiar and similar in its culture of practicing medicine, which ultimately tipped the scales in favor of St. Joseph Health.  

 "We felt this agreement allowed us more flexibility. It's really nice to keep it local," Dr. Feiwell said.

Being across the street didn't hurt, either. The physicians of the new Redwood Radiology will continue to be headquartered at 121 Sotoyome St. in Santa Rosa.

Redwood Regional has operated in five counties, including Sonoma, Marin, Napa, Mendocino and Lake, and has been based in Santa Rosa since the 1950s. The group serves more than 500 patients per day out of eight area locations. Annadel said it will maintain those locations and practices in collaboration with Redwood Radiology Group.

Officials said there would be no interruption in care and that patients can continue to access services from Annadel and St. Joseph Health at Redwood Regional's existing Sotoyome Street and Fountaingrove campuses in Santa Rosa, as well as existing sites in Petaluma, Healdsburg, Napa, Ukiah, Lakeport and Novato.

Collectively, these sites employ about 200. Employees have been hired either by St. Joseph Heritage Healthcare or St. Joseph Health.

Mr. Just, head of St. Joseph Heritage Healthcare, said the agreement could help St. Joseph Health coordinate better across a wider region.

"In some ways, this is filling in some of those regional gaps," he said.

With Redwood Regional aligning with St. Joseph Health, only one large physician-owned group based in Sonoma County remains, Santa Rosa-based Northern California Medical Associates, with 65 physicians.