With leaner times ahead, the world of academic medicine is learning how to cut the fat.
One recent example is the merger in late November of Hahnemann University in Philadelphia with the Allegheny Health, Education and Research Foundation in Pittsburgh.
The new $1.5 billion organization will be a powerful competitor that has the potential to reap significant savings, according to some healthcare administrators. But skeptics are reserving judgment until they see what changes actually are implemented.
The newly expanded Allegheny network includes Allegheny General Hospital in Pittsburgh; Medical College Hospitals' facilities in Philadelphia, Elkins Park and Warminster, Pa.; and St. Christopher's Hospital for Children and Hahnemann University Hospital, both in Philadelphia. It also includes two of Philadelphia's six medical schools: Hahnemann's School of Medicine and the Medical College of Pennsylvania.
In 1992, the two principal hospitals in the group reported profits. Allegheny General recorded net income of $17 million on net patient revenue of $368.9 million, according to HCIA, a Baltimore-based healthcare research company. Hahnemann University Hospital reported $9.3 million in earnings on $262.8 million in net revenue.
"This (consolidation) in particular is a good example of tangible efficiencies," said Alan L. Hillman, M.D., director of the Center for Health Policy at the University of Pennsylvania's Leonard Davis Institute of Health Economics.
Under terms of the agreement, Hahnemann and the Medical College of Pennsylvania eventually will combine their medical schools into a single academic program. "This is one of the first, if not the first time, that a medical school has been combined or merged specifically to achieve efficiencies," Dr. Hillman said.
The architects of the merger also are looking at ways to combine certain services. For example, cardiac catheterization and heart surgeries performed at Medical College Hospitals will be done at Hahnemann, which is considered a leader in cardiac care.
Executives also anticipate management layoffs. The first casualty was Scott K. Phillips, Hahnemann's senior vice president and chief operating officer, who left Hahnemann in November.
Allegheny executives didn't want to discuss plans for the future because committees only recently have been formed to make decisions. But a report by the Philadelphia Inquirer quoted Iqbal F. Paroo, Hahnemann's president and now executive vice president of the Allegheny Health, Research and Education Foundation, as saying that restructuring efforts will eliminate $20 million in administrative overhead.
Healthcare leaders weren't surprised that Hahnemann joined Allegheny's network, said Rhonda Karp, executive director of the Philadelphia Health Care Congress, a group that lobbies healthcare groups to have their conferences in Philadelphia. Several years ago, Hahnemann discussed plans to create a joint health sciences center with the Medical College of Pennsylvania, but executives decided not to move forward on the plan (Feb. 26, 1990, p. 3). Nevertheless, the local healthcare community was taken aback by the extent of the recently announced consolidation, she said.
"I think it's a lot easier to get married than to make a marriage work," said I. Donald Snook Jr., president of Presbyterian Medical Center of Philadelphia. He said mergers give hospitals the opportunity to lower costs, but they're not the solution.
"You've got to lower costs," Mr. Snook said. "Until they do that, nobody's going to take them seriously." But Mr. Snook and others acknowledged that the opportunity to lower costs is there.
"In terms of graduate medical education, there will be greater efficiencies," said Plato A. Marinakos, president and chief executive officer of Mercy Health Corporation of Southeastern Pennsylvania. Mercy Health operates three hospitals and an HMO and is a major teaching affiliate of the Medical College of Pennsylvania.
Dr. Hillman said the Hahnemann deal is "a shot across the bow." Already, Philadelphia-area hospitals are making significant changes in the way they deliver care. Here's a sample of some of their efforts:
|Pennsylvania Hospital and Thomas Jefferson University recently agreed to link their academic, clinical and administrative programs (Jan. 3, p. 24).
|Presbyterian Medical Center of Philadelphia has formed a 35-member multispecialty group practice as part of a movement toward capitation. Beginning July 1, the hospital will sign contracts with physicians who will be involved in hospital budgeting decisions.
|Methodist Hospital has applied for membership in Voluntary Hospitals of America.
|Crozer-Keystone Health System recently completed a three-year strategic plan that calls for positioning the four-hospital system as part of a regional community-health network. The system also intends to reduce licensed beds to 800 from 1,162 by eliminating beds and expanding ambulatory-care services. By June 30, Crozer-Keystone will have increased the number of physician practice sites it employs or owns to 20 from just eight a year ago.
Although the Hahnemann-Allegheny deal is one of the most visible recent efforts, almost every medical center in Philadelphia is taking steps to trim costs and expand market control, healthcare executives said. "There's an awful lot of chaos in the city," said Kevin Hannifan, Methodist's president and CEO.