Tough economic seas have rocked some hospitals and pushed them to find ways to cut costs. The answer for some has been to partner with another medical center. Those mergers can give the expanded health system a stronger bargaining position when it negotiates prices with insurance companies.
“You’ve got to get some countervailing power,” said health economist Michael Rosko. “You’ve got to get bigger.”
In this region, Independence Blue Cross is a giant with minimal competition, so it’s not surprising to Rosko that new alliances are forming.
In North Philadelphia, Temple University Health System completed a merger with Fox Chase Cancer Center this summer.
And in Montgomery County, Abington Health and Holy Redeemer Health System are exploring a union.
Such deals can also bring cost advantages called “economies of scale.”
“You might not need two legal departments, two marketing departments or two chief financial officers,” said Rosko, a professor of health care management at Widener University.
Despite that economic logic, these mergers can have outcomes that upset some consumers and community members. The Abington-Holy Redeemer proposal is a case in point.
Some mergers have resulted in the consolidation of emergency rooms or maternity wards.
The Maternity Care Coalition monitors health system changes, including the developing plans at Abington and Holy Redeemer.
“What we are really concerned about is to make sure that low-income families have places to give birth,” said policy director Letty Thall. “I’m not sanguine that things are going to improve. I wish I could say there would be more access, but we keep seeing less.”
Representatives from both Abington and Holy Redeemer declined WHYY’s request for an interview on their plans. In a statement, Abington said many of the partnership details will be addressed during a three-month due diligence period, which began last week.
Mergers can also improve a health system’s borrowing prospects, and experts say Holy Redeemer may be prepping for the coming requirements of the federal Affordable Care Act. New rules push hospitals to upgrade electronic medical record systems and information technology improvements can be expensive.
“Given Holy Redeemer’s poor financial position, it’s going to be difficult to gather up money to make those changes,” Rosko said.
Abington now runs three hospitals with 6,100 employees; Holy Redeemer runs an 11-county health-services network with 4,000 employees.
Before hospitals marry they should spend time exploring their cultural differences to avoid a clash, Rosko said.
“There’s always the question of: Are the partners compatible?” he said. “There have been mergers that turned out to be disastrous.”
Cultural differences may be at the heart of some loud protests over the Abington-Holy Redeemer proposal. Abington has said it will stop providing abortions if there’s a final agreement with the Catholic health system.
In a written statement, Abington Health worked to show that women will have other abortion options in Southeast Pennsylvania.
“In the 12 months ending in March, state records showed that of 17,575 abortions performed in the five-county Philadelphia area, 48 of them, or about one quarter of one percent, were provided at Abington Memorial Hospital,” the statement said.
Dr. Sherry Blumenthal, who’s served on the medical staff at Abington Memorial Hospital for 22 years, said she worries about health access for women in her local community. She says it makes sense to think about health access in terms of the immediate community, not a far-flung, five-county Southeastern Pennsylvania region.
Blumenthal said high-risk, emergency abortions are done most safely in a hospital setting and if the Abington-Holy Redeemer alliance succeeds, there will be fewer options for women.
“She would probably need to go over a half an hour, to either Einstein or Doylestown,” said Blumenthal, chair of the Pennsylvania section of the American Congress of Obstetricians and Gynecologists and partner in a local private practice.
“If it’s an emergency situation the transfer to another hospital could take over an hour from the time the ambulance comes, and this could be very dangerous for the woman’s health.”
In a statement, Holy Redeemer’s CEO Michael Laign said the two health systems have been in discussions for “some time,” and that’s left some patients and doctors frustrated that hospital executives have not shared more specifics on the ways health care will change under the proposed partnership.
“Members of [the Abington] medical staff were clearly shocked by it,” said Carol Tracy, director of the Women’s Law Project.
Abington has said the parent organization of a new Abington-Holy Redeemer health system would be secular. Still, Tracy said she was alarmed by the announcement on “religious interference on medical decisions” from an institution, she says, that has provided “stellar” reproductive health care in the past.
“I think it’s a very slippery slope when you are dealing with the Catholic Church,” Tracy said. “What happens to a rape victim who is brought into the emergency room? Is anyone going to dispense emergency contraception to her?”
Tracy is hoping for creative solutions to maintain full access to health care for local women.
A New York non-profit group called MergerWatch is consulting with local residents and has helped negotiate those “creative solutions” in other parts of the country.
In one case, the community built a nearby health clinic to take over abortion services. Another time, the health system created a separate “hospital-within-a-hospital” to offer tubal ligation.
MergerWatch director Lois Uttley said sometimes merger proposals are dropped, “if enough serious questions arise.” And when a Catholic hospital is the financially weaker hospital, Uttley said, in a couple of instances the Catholic hospital has agreed to be de-commissioned as a Catholic hospital and has become non-sectarian.
Some of the numbers
Economists often consult three measures to better understand a hospital’s financial health.
An OPERATING MARGIN is the percentage of revenue left after all expenses are paid. A negative operating margin means that revenue alone is not sufficient to cover costs.
UNCOMPENSATED CARE is an estimate of the amount of revenue hospitals lose to due to bad debt and charity care.
MEDICAL ASSISTANCE refers to payments made through the Medicaid program, which typically pays much less for services compared to insurance companies and private payers.
Source: Pennsylvania Healthcare Cost Containment Council Financial Analysis Fiscal Year 2011 report