A proposed merger of PinnacleHealth and Penn State Hershey Medical Center was scrapped last year due to arguments the unified system would be dangerously big. Yet it may have opened the door for a far bigger player to invade the market PinnacleHealth and Hershey sought to defend, potentially resulting in a seismic shift in the state's health care landscape.
There's increasing speculation among Harrisburg-area health care insiders concerning two blockbuster possibilities. One is that PinnacleHealth will acquire up to four of the region's smaller hospitals: Carlisle Regional, Lancaster Regional, Heart of Lancaster and Memorial Hospital in York. The other is that the vast University of Pittsburgh Medical Center will then acquire PinnacleHealth, placing all of those entities under the umbrella of one huge, market-shifting entity.
None of the parties have been willing to confirm or discuss those possibilities.
PinnacleHealth "has been open to exploring collaborative relationships with compatible organizations that can further its mission of maintaining and improving the health and quality of life for all the people of central Pennsylvania," the company said in an emailed statement. "We will update our stakeholders and the community if there are developments to share about new relationships."
A UPMC spokeswoman said last week "there was nothing on the horizon" regarding a potential union with PinnacleHealth. UPMC didn't immediately respond to further questions Wednesday.
A spokeswoman for Community Health Systems, the Tennessee-based chain that owns the four smaller hospitals, confirmed that some of its hospitals are for sale, but said there will be no announcements until after deals are signed.
Yet talk of Pinnacle acquiring hospitals and then joining with UPMC is rampant in health care circles. It's occurring within upper levels of health insurers, rival hospitals, hospitals thought to be for sale, and among government lawyers who would review the transaction, which would require approval from the state attorney general's office and the Federal Trade Commission.
"Those rumors make infinite sense," says Stephen Foreman, an associate professor of economics and health administration at Robert Morris University.
The failed merger between PinnacleHealth and Hershey Med has contributed to what he calls a "vacuum" covering a swath of Pennsylvania from areas west of Cumberland and Perry counties through the Harrisburg area and into York and Lancaster counties.
That void grew after the proposed merger died in the face of government regulators' claims it would result in a monopoly. But the forces that pulled those former rivals together remain.
The most powerful force is knowing each must get bigger to continue to thrive and fend off powerful outsiders.
Another contributing force is the opportunity the failed merger might create for one of those feared outsiders to rush in before Hershey and or Pinnacle can come up with a plan B.
Still another is the likely availability of four community hospitals believed to be on the market. They present the opportunity that in one fell swoop, a hospital system looking to expand could gain a foothold in three overlapping markets while also cutting off growth opportunities for others.
These reasons and more give life and logic to the growing speculation, including the Pittsburgh behemoth's continued growth.
UPMC, with more than 20 hospitals, has been extending eastward. In October, it moved into Williamsport through its acquisition of Susquehanna Health.
Commonly ranked among the best hospitals in the United States, UPMC is a teaching hospital considered a top destination for patients needing the most complicated care, such as those in need of transplants, high-end oncology, or care for severely-ill children. Those patients also tend to be the most profitable ones. Renowned systems such as UPMC commonly use community hospitals they own or are affiliated with to refer and funnel such patients to their marquee services.
Foreman believes UPMC could well view Pinnacle's openness to finding a partner, and the availability of the four smaller hospitals, as a golden opportunity to gain a foothold in the Harrisburg-York-Lancaster market. UPMC could gain more of the added scale that most if not all systems continue to seek, and be in a better position to compete with Penn State Hershey for patients who want care from a university system. From Pinnacle's standpoint, it could provide the increased scale and market muscle it has hoped to gain through the failed merger with Hershey.
And despite concerns on the part of federal and state regulators that a PinnacleHealth-Hershey Med merger would create a monopoly, antitrust experts have said a deal involving an outside system that didn't reduce the number of local hospital choices would likely be approved.
Still, David Sarcone, a Dickinson College associate professor of business and management with a background in health care, doesn't regard a UPMC-PinnacleHealth union as quite so plausible. In his assessment, if UPMC wanted quick entry into the market, it would likely just acquire the CHS hospitals on its own, as it has done with numerous small hospitals in the western and central parts of the state. That would have the added benefit of exerting more pressure on Pinnacle to join UPMC, and do so more on UPMC's terms, Sarcone said. But on the other hand, if Pinnacle were to acquire the hospitals, it could gain leverage in a transaction with a bigger system such as UPMC.
Sarcone further believes that, of the smaller hospitals said to be for up sale, Carlisle Regional is likely the most appealing to a larger system, with the others less appealing. It's a newer facility with no competitor in its backyard. Moreover, it's located in an enticing area in terms of demographics such as people covered by Medicare or otherwise well-insured, and who will be even more appealing if repeal of the Affordable Care Act shrinks the insured population. He sees it as a good opportunity for a strong, well-regarded system to make upgrades to Carlisle Regional and then re-brand and aggressively promote it.
Still, regarding the possibility of one system acquiring up to four CHS hospitals, Sarcone said the task of integrating them "would be mind-boggling and very susceptible to failure."
Speculation of major pending change involving PinnacleHealth gained added fuel with the abrupt resignation of CEO Michael Young last week.
A UPMC entry into the Harrisburg region market could have other substantial ramifications for individuals and businesses which purchase health insurance. UPMC has its own health insurance arm. In the Pittsburgh region, UPMC stopped accepting Highmark coverage, forcing people to make an often gut wrenching choose between Highmark or access to UPMC hospitals. That unprecedented battle between a region's most popular health system and its biggest health insurer made news around the country.
If UPMC were to gain a substantial presence in the Harrisburg region, it might well stop accepting Highmark coverage. That could push Highmark toward some sort of affiliation with a system such as Geisinger Holy Spirit. The end result could be area residents no longer having a choice of any hospital in the region. On the plus side, Geisinger is another of the small number of health systems which also has a health insurance arm, and the increased competition among health insurers and hospitals might benefit consumers. That would be different than in most areas which have seen high levels of hospital consolidation, where prices have typically risen.
Moreover, a UPMC-PinnacleHealth transaction could have profound implications for Penn State Hershey, which has also said it wants to grow, but has revealed no definite strategy.
"You've got all these other people linking up with other major players," said Foreman, the Robert Morris University expert.
Penn State Hershey could end up with the UPMC-PinnacleHealth entity to the west and south; Geisinger-Holy Spirit to the west and north; and York-based WellSpan Health to the south and east, due to WellSpan's 2014 acquisition of Good Samaritan in Lebanon.
Lancaster General also can't be ignored. The formidable and expanding competitor dramatically increased its scale in August 2015 by becoming part of the Philadelphia-based University of Pennsylvania Health System.
PennLive reporter Colin Deppen contributed to this article.