Children's accepts UPMC offer

In the end, it was an offer they couldn't refuse.

Children's Hospital of Pittsburgh on Thursday accepted a deal worth $700 million from UPMC Health System that would merge the region's only pediatric specialty hospital into UPMC's sprawling 16-hospital system.

Officials say the deal will not result in layoffs or limit access for patients that aren't in UPMC's health plan.

The deal came one week after Highmark Blue Cross Blue Shield, the region's largest insurer, offered the hospital a $100 million gift toward building a new hospital.

'I think the math is pretty clear,' Ronald L. Violi, president of Children's Hospital, said at a news conference yesterday. 'At the end of the day we have $100 million on one end and we have $500 million on the other end. When you're Children's Hospital and you say 'which one of these deals is best for you?' and 'which one of these deals can you use to best serve this community and continue your mission?' I think it's pretty easy to make that decision.'

As part of the deal, which had been under consideration for two weeks, UPMC will pay $250 million to build a new Children's Hospital on the site of the UPMC Montefiore campus. The new facility will be two blocks from Children's current location on Fifth Avenue in Oakland.

UPMC would also invest $250 million over the next 10 years to expand and create pediatric research programs.

The proposal also allows Children's to move its $200 million endowment to the recently formed Children's Hospital of Pittsburgh Foundation, which will remain independent from UPMC. In addition, Violi said UPMC will assume Children's $65 million in long-term debt.

Dively said it is unclear when the transaction will be finalized, though the need for a new hospital will force quick action. Officials expect construction of the new facility to begin immediately after the merger is finalized.

The deal will increase UPMC's control of health care in the region - the hospital system now owns 16 hospitals.

UPMC also will, once construction of the new hospital is finished, control appointing two-thirds of the Children's board of directors. Children's Hospital of Pittsburgh Foundation officials will appoint the other members.

Children's officials insist they were never under pressure to accept the deal from UPMC. Though the hospital will forgo its coveted independence, officials said the merger will not affect who is treated at the Oakland facility.

'To me, as a parent of three 5-year-olds, probably the most important aspect of this proposed agreement is that we have provided that access will remain unchanged for all families and children regardless of who their insurer is,' said Mary Jo Howard Dively, chair of the Children's board of trustees.

'I want to stress that because I know that has been a big concern in the community. It was the primary concern of our board, and I think anybody who has ever come to Children's Hospital understands the commitment that we have to children and families, and we will not enter into an agreement that threatens that.'

UPMC and Highmark have been at odds over the access issue. Highmark yesterday said the merger raises questions not only about access but cost.

'There is a potential other systems may add more pediatric services to compete with UPMC,' said Highmark spokesman Michael Weinstein. 'What is the cost of that?'

UPMC, absent from yesterday's news conference, said it will not tinker with Children's mission. UPMC spokeswoman Jane Duffield said the marriage will give Children's more power to compete for grants available through the National Institutes of Health that are typically channeled to leading academic centers.

Dively said Children's 17-member board seriously considered Highmark's offer. She would not say how the vote was split, but said it was overwhelmingly in favor of the UPMC deal.

Industry observers, many of whom had predicted a UPMC-Children's pairing, said UPMC could use Children's as leverage to charge more for access to its hospitals.

Tom Tomczyk, a benefits consultant with William Mercer & Co., Downtown, said such increases are to be expected regardless of the merger.

'Whatever happens with Children's, their rates are going up,' he said. 'They've been squeezed for so long. You're going to see an increase no matter what.'

The same, Tomczyk said, goes for every other hospital in the region that has suffered from declining reimbursements and government cutbacks.

'What people ought to be worried about is not just increases at Children's, they ought to be worried about upcoming negotiations between insurers and other hospitals,' he said.

Word of the merger spread quickly among Children's employees.

'As long as everybody can bring children here, it should not matter who you're affiliated with,' said Debbie Schmontz, a nurses' aide in the intensive care unit.

Violi said no layoffs are expect as a result of the merger. Instead, he predicted that more clinical staff is 'definitely' in the picture as the hospital expands.

'I hope they leave this place pretty much alone,' said Scott Ebert, whose son, Jordan, was finishing up his last day of chemotherapy for leukemia. 'Bottom line is they treated us well. Let them do what they've been doing.'

The name Children's Hospital of Pittsburgh, a fixture since 1890, would not entirely vanish. But the institution will likely be known as Children's Hospital of Pittsburgh of UPMC Health System.

The deal is not the first time an independent pediatric hospital has merged with a larger system. Of nearly 200 pediatric specialty hospitals nationwide, only 66 are self-governing, according to the National Association of Children's Hospitals and Related Institutions in Alexandria, Va.

Larry McAndrews, the association's president, said mergers only work if the larger system is able to balance the needs of the system versus the mission of caring for children.

'It's not just having access to more resources, it's an appreciation of the unique needs of children,' he said. 'A good bit will depend on the leadership. The key is to structure an environment in which the needs of children can be met with a real focus on the needs of children.'

Luis Fábregas can be reached at lfabregas@tribweb.com or (412) 320-7998.