The mighty UPMC Health System has sailed through a sea of troubles in recent months to emerge with a new hospital under its marquee and a disgruntled hospital silenced.
A three-member arbitration panel ruled last week that UPMC Passavant must remain part of the now-16-hospital UPMC Health System. The decision came just two weeks after UPMC officially welcomed 235-bed Children's Hospital of Pittsburgh to its ranks after months of antitrust legal haggling with the region's largest insurer, Highmark Blue Cross and Blue Shield (Oct. 29, p. 14).
The binding decision ends a 21/2-year dispute between the 199-bed hospital located in the North Hills section of Pittsburgh and the Pittsburgh-based academic medical center. The controversy illustrates the cultural clashes that often erupt when corporate health systems try to merge with community-run hospitals.
UPMC officials boasted that the ruling affirms every detail of the 4-year-old merger agreement as well as the five-year integration agreement that will end in November 2002 when the transition is completed and UPMC is fully in charge. The arbitrators also upheld UPMC Passavant's claim that the parent must contribute $45 million for capital improvements at the hospital. The money will be matched by the Passavant Foundation under the terms of the merger agreement.
Specific details of the ruling were not made public.
Passavant officials tried to pull out of the 1997 merger in early 2000, complaining that UPMC was ruling with an iron hand.
Passavant challenged UPMC's authority to make local decisions and also questioned the wisdom of some of the system's business strategies, such as spending millions of dollars to buy physician practices. Under the terms of the merger agreement, the dispute went to binding arbitration.
But UPMC officials were not about to let one of its financially strongest hospitals walk away from a merger agreement, although last April it did just that with the struggling 24-bed UPMC Beaver Valley Hospital, Aliquippa, Pa. (April 16, p. 18).
In the fiscal year ended June 30, 2000, Passavant earned $7.4 million on $98.3 million in net patient revenue, according to the American Hospital Directory, an online data service. The prior year, the hospital earned $6.6 million on $90 million in net patient revenue.
Robert Henderson, director of planning and marketing for Passavant, said both governance and financial issues provoked the desire to de-merge. The Passavant board believed that the local board, rather than the system board, should decide local issues, he said. Passavant now appoints two-thirds of the Passavant board and UPMC appoints the other third, but the balance of power will reverse next year when the integration period ends.
Financially, there was concern that UPMC would not invest the $45 million it promised, he said.
"We're happy that the financial issue was resolved," Henderson said. "That's why we went to arbitration and needed that resolved, because we were not receiving it."
UPMC officials said they were happy with the ruling.
"It affirms the integrity of the UPMC health system and underscores the ultimate authority of the board," said Jane Duffield, a UPMC spokeswoman.
Duffield, however, took issue with Passavant's characterization of the $45 million as "an award." Throughout the relationship, UPMC always reassured Passavant that it would contribute its share, she said.
"Our philosophy was that it was all one pot anyway, but they successfully argued that the $45 million should come from the parent fund. We always reassured them that we would be willing to meet our obligations under the merger," Duffield said. "The $45 million was just an interpretation of some ambiguous language about from what pot it should come."