When Mercy Hospital agreed last week to merge with health care giant University of Pittsburgh Medical Center, a final chapter closed in a region once brimming with independent hospitals. Barely a decade ago, Western Pennsylvania was home to free-standing competitors such as St. Francis Medical Center, Westmoreland Regional Hospital and Magee-Womens Hospital. Not anymore. “You might say we basically have two players,” said Walter Wayne, chief financial officer at the Hospital Council of Western Pennsylvania, which represents about 63 hospitals in 30 counties. Those two hospital networks — the 16-year-old UPMC and its newer, slimmer rival, West Penn Allegheny Health System — emerged dominant after years of frenzied consolidation. Before 1996, Allegheny County had more than 15 independent hospitals and five hospitals run by UPMC, according to the Pennsylvania Department of Health, which licenses hospitals in the state. Ten years later, UPMC and West Penn Allegheny tower over an increasingly concentrated market. If the $120 million merger of UPMC and Mercy is approved, Allegheny County will have only four hospitals operating outside the orbits of the two major systems: Jefferson Regional Medical Center in West Mifflin, St. Clair Hospital in Mt. Lebanon and Ohio Valley General Hospital in Kennedy — all independents — and Sewickley Valley Hospital in Sewickley, part of Heritage Valley Health System. In neighboring Westmoreland County, there has been similar downsizing. Monsour and Citizens General have closed. Latrobe, Frick and Westmoreland hospitals now operate as part of Excela Health, and Mercy Jeannette no longer will be tied to Mercy Hospital. A decade of mergers was prompted in part by the growth of managed care and by cuts in Medicare and Medicaid reimbursements, the bread and butter of most hospitals. “It’s not just in our marketplace, but in every marketplace in the country that you’ve had this kind of consolidation. That’s just the way the industry has been progressing,” said Cliff Shannon, a board member of the Pennsylvania Health Care Cost Containment Council and president of Pittsburgh-based SMC Business Councils. The explosion in hospital mergers and acquisitions in the past 20 years occurred largely because many independent hospitals could not negotiate effectively with insurers, Shannon said. By joining bigger networks, those hospitals gained the leverage needed to secure more favorable reimbursement contracts in a system of managed care, he said. The triumph of heavyweights UPMC and West Penn Allegheny is not a surprise, experts say. Consolidation allowed them to reduce costs, gain purchasing power and combine high-cost departments such as billing and information systems, Wayne said. “One of the ways you can become successful is to eliminate duplication,” he said. UPMC and West Penn Allegheny can also maintain a constant flow of patients at their large, teaching hospitals. UPMC operates 1,567 licensed beds at its Presbyterian and Shadyside hospitals, while West Penn Allegheny has 824 beds at Allegheny General Hospital on the North Side and 512 beds at West Penn Hospital in Bloomfield. Those large hospitals serve as large referral bases, so they teem with patients when smaller hospitals are at most half full, Wayne said. UPMC, whose Presby flagship posted an average occupancy rate of nearly 80 percent in fiscal 2005, compared to the county average of 68 percent, says it needs more beds. “We can’t cram any more people in there,” said Robert J. Cindrich, UPMC’s legal counsel, adding that they’ve had to postpone some elective surgeries because of a lack of bed space. Obtaining Mercy will give UPMC an additional 428 beds, which might preclude the need to spend about $400 million for new buildings in Shadyside and possibly Oakland. UPMC, which operates a hospital in Italy, also will earn good will at the Vatican by agreeing to preserve Mercy’s Catholic tradition, Shannon said. But Cindrich said UPMC is not just acquiring hospitals for its own sake. “We believe in this community,” Cindrich said. “We believe it should have a faith-based hospital. We believe the Downtown should not be left with a big hole in it. We are do-gooders in that way.” UPMC saw the opportunity to rescue Mercy as the right thing to do for the city, which has relied on the hospital’s commitment to the urban poor and those in need of mental and behavioral health services, Cindrich said. “If Mercy were to have failed, it would have been disastrous. Who would’ve taken care of these patients?” said Dr. Terence Starz, president of the Allegheny County Medical Society and a UPMC rheumatologist practicing in Oakland. The Uptown hospital delivers charity care at rates up to two times the regional average. Those responsibilities left Mercy unable to make $65 million in badly needed capital improvements while continuing to provide the same quality of services, said Ian Rawson, adjunct professor of health policy at Carnegie Mellon University. “It’s not illogical that Mercy would find itself in a situation where its social commitments would challenge its financial viability,” Rawson said. UPMC’s pledge to sustain the social and Catholic mission of Mercy should be taken at face value, Rawson said. “There’s no indication this was done for competitive purposes,” he said. “This is not in the merger/acquisition spirit of 10 years ago.” Not everyone agrees. West Penn Allegheny is calling UPMC’s tactics monopolistic and says the merger will limit consumer choice. Such a complaint is nothing new. Five years ago, West Penn Allegheny filed an unsuccessful lawsuit to thwart the merger of UPMC and Children’s Hospital of Pittsburgh. The merger went through in 2001. UPMC stands by its growth and its commitment to provide quality services. “If we were really mercenary, we would have just waited for Mercy to close and got it for nothing,” Cindrich said. Some hospitals that joined UPMC in the last 10 years — most notably UPMC Passavant in McCandless and Children’s in Oakland — expressed initial dissatisfaction with their new parent. “There is a period of mourning and loss, you can’t get around it,” Cindrich said. “There’s even a period of rebellion in a merger.” But UPMC officials and the Sisters of Mercy hope the amicable deal forged in its convent will be completed by the end of the year, pending key approvals from the Vatican and state and federal regulators. As of right now, there is no indication the merger will meet any opposition — and no signs of any impending “seismic shifts” in Pittsburgh’s health care system, Rawson said. The key to protecting consumers from higher prices in this consolidated market lies in the next round of reimbursement contract negotiations between UPMC and third-party insurers, particularly Highmark Inc., Shannon said. “If the leading insurers and the people who are their customers can’t conduct more effective negotiations with UPMC, that’s not UPMC’s fault,” Shannon said. “Employers need to be a lot smarter and more aggressive in terms of what they need and want.” Additional Information:

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