HARRISBURG, Pennsylvania — Penn State Hershey and PinnacleHealth have begun formal talks to "broaden their existing strategic relationship," the hospital systems announced last week.
The goal is "to improve access to care and increase the quality and breadth of health care services available to people throughout central Pennsylvania," as well as strengthen teaching and research, said the joint announcement.
The two organizations are in the process of selecting an independent third-party firm to help explore potential opportunities for the two health care organizations to expand their relationship. The evaluation process is to be finished by the end of March 2014.
Whether a merger will be part of the discussions is not certain, and further comment from the hospital systems was not immediately available, said Scott Gilbert, Penn State Hershey spokesman. "We are saying we're excited about the possibility of a collaboration. That's all we know," Gilbert said.
Smaller health systems are finding that greater size is needed to attain cost efficiencies, bargaining power with insurers and the resources needed to invest in new technology.
"I believe that these two health systems bring complementary strengths to the goals of improving the health status of the population we serve and in delivering more cost effective, high quality and accessible health care services to the region," said Michael A. Young, president and CEO of PinnacleHealth. Both are "vibrant health systems offering a broad spectrum of health-care services, technologies, research capabilities and facilities," he said.
"In general we are seeing to some degree a trend toward this, of certain affiliations of some type to better meet the needs of their communities," said Roger Baumgarten, spokesman for the Hospital Association of Pennsylvania. "The potential is there to offer better coordination, greater breadth of care in the affiliated group, with more efficiencies," Baumgarten said.
Asked what the potential negatives are, Baumgarten cited the Penn State-Geisinger merger of the late 1990s. "It didn't work out," he said. The 1997 merger lasted less than three years, with both sides citing a "culture" clash between one entity that focused on research and teaching, and the other on clinical care and the bottom line.
"There are no guarantees, but they are pursuing it and doing what they feel will be in the best interest of patients and communities," Baumgarten said.
Dr. Harold Paz, Penn State Hershey CEO and dean of the Penn State College of Medicine, said in the announcement that "given our past success in working together, it makes sense for us to explore additional opportunities."
In September, as Penn State Hershey reported income topping $1.3 billion, with a $112 million margin, Paz said, "We must be willing to take risks in order to be successful."
"We've been tremendously successful in recent years," Paz said. "But (we) can't be content to rest on our success." Paz said he would be looking for $125 million in new revenue and cost savings over the next three years by growing the medical center's market, reducing supply chain costs and increasing staff efficiency.
Health care mergers and partnerships are trending nationwide, as well as in the midstate, spurred by factors including Affordable Care Act-driven cost controls, declining payments from both private insurers and government payers such as Medicare.
The latest in the midstate is an affiliation being explored between Geisinger and Holy Spirit health systems, announced in September.
PinnacleHealth System had previously explored merger talks with York-based WellSpan Health, but ended them in 2010. They ended in part due to feedback Pinnacle's board of directors received from doctors, employees and other stake holders, said a Pinnacle spokesoman Lisa Henry.
PinnacleHealth and Penn State Hershey already have forged several collaborations:
— In 2008 they formed the Pennsylvania Psychiatric Institute, which includes a 74-bed hospital and three outpatient practices providing mental health services.
— In 2010, the two organizations signed an affiliation agreement expanding their academic partnership. For more than 10 years, PinnacleHealth hospitals have been a training site for Penn State Hershey residents, fellows and medical students. PinnacleHealth residents also complete elective rotations at Penn State Hershey in several medical disciplines.
— Penn State Hershey and PinnacleHealth are part owners of Horizon Healthcare Services, a home infusion agency.
— The two health systems worked together on a joint community health needs assessment in 2012 that examined health disparities and ways to improve health and wellness in the midstate.
Teamsters Local 776, which represents 935 Penn State Hershey employees, is monitoring the developments, said Herb Garber, the business agent for the Teamsters who work at Penn State Hershey. "We have no indication at this point in time what effect that would have on the employment status of any of our members," he said.
A new contract was recently approved that runs through June 30, 2016. "It provides members with some guarantee of job security. So we don't see any kind of an issue going forward," Garber said. The Local includes workers in technical service, housekeeping, food service, laundry and more.
Information from: The Patriot-News, http://www.pennlive.com/patriotnews