Top stories of 2016: Penn State Health/PinnacleHealth merger blocked

(Harrisburg) — In late-September, a federal appeals court blocked what would have been a blockbuster merger between two major health systems in the midstate.

The failed deal between Penn State Health and PinnacleHealth is one of WITF’s top stories of 2016.

The Federal Trade Commission and state Attorney General’s office challenged the merger between the two health systems, arguing one large system would control the market and raise prices even higher.

Tim Graney, a former senior staffer at the US Justice Department, is now co-director of the Center for Health Law Studies at St. Louis University.

After the ruling, he spoke to WITF.

“I don’t know whether to describe it as a celebration or a sigh of relief, because there was a lot at stake in this case, and in the case that’s pending now up in Chicago, in terms of defining geographic markets,” he said.

Graney added: “The economic evidence is pretty good, although it’s not overwhelming, that consumers benefit from having competition at the hospital level, and at other levels as well, including insurance markets.”

But proponents of the merger argued it would lead to cost savings and more coordinated care.

Despite the court’s decision, PinnacleHealth is confident about where it stands.

Chief Financial Officer Bill Pugh said it’s business as usual.

“So it’s not like we went oh now what do we do? That was never a conclusion here,” says Pugh.

“It was okay, now what’s next? We’re very optimistic, we’re very bullish on Pinnacle and it’s high value, high quality, so we’re going to continue doing what we do, and we’re going to be fine.”

Pinnacle’s CEO Michael Young said he’s upset about the court’s decision.

“PinnacleHealth is a proven merger that’s worked for 20 years, and we believe we could’ve taken $100 million to $200 million per year out of the cost of care, made it more coordinated, and frankly made better clinical outcomes,” he said.

Young is referring to the 1996 merger of Polyclinic Hospital and Capital Health System, which formed PinnacleHealth.

Meanwhile, Penn State Health’s CEO Dr. Craig Hillemeier says the health system is actively pursuing other deals after the merger fell through.

“I think the paradigm has changed for those discussions, and probably maybe some more discussions have happened, but I don’t think the pace is all that much different from what we’ve been doing over the last several years,” he said.

Hillemeier added: “I think we have lots of options out there, lots of opportunities and we’re having lots of discussions. But I don’t think it helps any of those discussions to be very specific about who we’re talking with about what.”

Hillemeier said his organization is also considering adding beds in Hershey, because it won’t be able to shift patients to Pinnacle since the merger was blocked.

Leaders at both of the organizations agree — the health care industry is in flux while dealing with a constantly changing marketplace.

Competition between hospitals has been intense, with Penn Medicine and Geisinger moving into the midstate, and WellSpan expanding.