Some hospitals involved in faltering mergers have decided that breaking up is the way out. For Wyoming Valley Health Care System in Wilkes-Barre, Pa., the way out is pursuing yet another merger.
Late last month, the system proposed a merger with 173-bed Mercy Hospital of Wilkes-Barre (Sept. 25, p. 4).
Wyoming Valley already operates two of the city's four hospitals: Wilkes-Barre General Hospital and Nesbitt Memorial Hospital, with a combined 442 beds. The city's fourth hospital is 124-bed Geisinger Wyoming Valley Medical Center, which is owned by Geisinger Health System, Danville, Pa.
With Mercy Hospital in its fold, Wyoming Valley Health Care would control three of the four hospitals and 83% of the staffed beds in town--similar to what's happening 85 miles west in Williamsport, Pa.
An HMO has accused the hospital system there of illegally using its clout to raise prices to artificially high levels (Sept. 4, p. 2). Susquehanna Health System owns both Williamsport hospitals and a third in nearby Muncy, Pa.
"(Williamsport) is a very similar scenario with (the Wilkes-Barre) systems merging," said Connie Jewett, vice president of external affairs for Blue Cross of Northeastern Pennsylvania. Payers will be watching both situations, she said.
But a large market share is a dubious distinction in an area where the Medicare population is high--50%, according to one group--and the rural reimbursement rates are low, argued William Fuchs, a senior vice president at the Hunter Group, a St. Petersburg, Fla.-based turnaround firm Wyoming Valley Health Care hired last March (May 8, p. 20).
"I don't think bigger is better in our case," said Fuchs, Wyoming's interim chief executive officer.
The system's current control of two of the city's four hospitals and 60% of its staffed beds hasn't translated into mounds of money. Wilkes-Barre General and Nesbitt Memorial merged in 1992 to create Wyoming Valley Health Care.
For the fiscal year ended June 30, 1999, the system had an operating loss of $25 million on net revenue of $264 million. For the current fiscal year, the system is projected to break even thanks to the divestiture of 101 physician practices, a re-organization of the governance structure and the layoff of 215 employees, Fuchs said.
Mercy broke even in fiscal 1999, said John Nespoli, Mercy's president and CEO. He declined to provide specifics. But in 1998 Mercy dipped into the red, losing $190,000 on revenue of $65.3 million, according to figures from HCIA-Sachs, a Baltimore-based healthcare information company.
Mercy is part of Catholic Healthcare Partners based in Cincinnati. Under the plan, Mercy would split from CHP and Mercy's sister hospital, 265-bed Mercy Hospital of Scranton (Pa.).
The two would-be partners in Wilkes-Barre have identified $21 million in annual savings by eliminating duplicative administrative and support services, Nespoli said. During the next five years, another $50 million could be saved in capital costs, he added.
Mercy is studying the feasibility of merging with Wyoming Valley, said Jeff Lewis, Mercy vice president for marketing and public relations. The second phase of that study will end Dec. 31 with a recommendation to merge or study it more. If the merger happens, Lewis said, it'll take up to five years to complete.
Also driving the deal is Geisinger Wyoming Valley's decision to build a new 10-bed heart hospital in Wilkes-Barre. The $15 million facility is expected to open in August 2001.
Besides regulatory approval, the merger would require the blessing of Mercy's Catholic sponsors as well as Bishop James Timlin of Scranton.