As the medical landscape changes, hospitals and health systems are changing as well.
At PinnacleHealth System, one big change is due in a few months, when the Harrisburg-based nonprofit opens its new five-story, 108-bed West Shore Hospital in Hampden Township. It will be Pinnacle's third hospital.
Michael A. Young, Pinnacle's president and CEO, sat down with the Business Journal last week to talk about where the system is headed in these tumultuous times.
Q: How does CareConnect, your new health insurance partnership with Capital BlueCross, fit into your general business strategy?
A: It's really turning into reality what a lot of people are talking about putting together a lower-cost product that has the same level of service and the same clinical outcomes in a slightly narrowed network, because there's a great incentive to utilize the Pinnacle locations. So it's collaboration with a local business, it's doing more with less, and it's more patient and personal involvement in where they get their care and an economic incentive to make that happen.
How would you characterize Pinnacle's coordinated care programs? Would you say they're mature programs or in development?
I wouldn't call any of them mature. They're past the nascent step, so I would say early operations. We're working the bugs out, we're not Kaiser Permanente that has been doing this for 10 years. We're further along than most. We tried doing this in the mid-1990s, when Lancaster and Pinnacle and Reading and York and we had our own HMO. The reason we couldn't do it in those days was we didn't have electronic medical records.
I see conflicting dynamics in health care right now, with market conditions pushing cooperation and consolidation but regulations and public opinion still very concerned with competition and preventing monopolies. You've been in the hospital business for a long time. Generally speaking, do you see a viable path to success for most of the industry under these conditions, or do you expect that we'll start seeing failures if that tension isn't resolved somehow?
The average hospital loses money on Medicare. We break even, because our cost structure's low. So if you're losing money on 50 percent of your business, the other 50 percent have to make up for that plus enough to pay for next year's building, and there isn't enough anymore in those BlueCross and Highmark and Aetna rates to pay for that. So hospitals that were doing barely fine plus, just chugging along, suddenly can't do it anymore, because they're break-even or worse.
In the old days you were chasing the revenue, so you developed all these services. Now that the margins are very small, you say, "What are the services that are core to our community?"
The other thing that's started to weigh heavy on everyone is all the regulation. If you're a small hospital and you don't have the compliance and billing expertise and management availability to fight them and articulate your position, then you get crushed. Also, if you're a hospital with very low reserves, can you take the economic risk of doing an accountable care arrangement? The answer is probably not.
Number two, these resources are expensive — compliance officers, lawyers, all these programs. So you say, "Couldn't we have one program?"
If you look at Penn State Hershey Medical Center [with which Pinnacle is exploring an expanded relationship], we have a very strong cardiac program, they have a good cardiac program, and the next step in cardiac care is left ventricular assist devices. They're basically bridges to transplants, and they're about $105,000 a pop. Should we have two LVAD programs in Harrisburg or one? Probably one. But if we do it, they're concerned that gives them a competitive disadvantage; if they do it, we're concerned that we have a competitive disadvantage. So why don't we do one together?
So literally, what the Hershey discussion is about is, there are some things we do better and some things they do better. If as an entity we could do these things at one place out of the two of us, wouldn't that be better for everybody?
We can do a knee for a fraction of the cost of Hershey, so if we can keep that knee here, that saves the community a truckload of money. But there are services we need from Hershey — high-end NICU, high-end trauma, high-end surgeries that we don't do. If we can aggregate those at Hershey and do them in their program, it actually lowers the cost and we get better outcomes because their guy's doing 100 a year. That's why we're looking at the Hershey relationship. There really is a complementary aspect, so bigger there isn't a monopoly. It's allowing us to build off of each other.
For the industry overall, I think we'll see more consolidation, and I think we'll see closures.
PinnacleHealth System is currently in four programs that focus on coordinating care, as follows:
• An accountable care agreement with Aetna offering health insurance
• River Health ACO LLC, a Medicare accountable care organization with several other providers