OPINION: Pat Howard: Saint Vincent agrees to takeover to counter Hamot’s upper hand [Erie Times-News, Pa.]

Oct. 21--Over the years as Erie's two biggest hospitals considered the prospects for consolidation, first with each other and then with out-of-town outfits, leaders of Saint Vincent Health System publicly ranked maintaining the legacy of the nuns who founded it as a primary concern.

In the end, keeping the Sisters of St. Joseph of Northwestern Pennsylvania at the heart of the 137-year-old hospital's mission didn't make the cut in the pitiless fight Saint Vincent is waging with a surging UPMC Hamot and market forces. A deal Saint Vincent unveiled last week will, if it passes regulatory muster, put the good sisters out of the hospital business.

The deal calls for Highmark Inc. to infuse $60 million into Saint Vincent over the next three years to "maintain financial soundness" and upgrade facilities and technology. The Sisters of St. Joseph will get $5 million to support the order's capital needs on the way to walking away from their hospital's governance.

The arrangement raises all kinds of questions about what's next for Saint Vincent and the Erie region's health-care market, but who will call the shots at Erie's oldest hospital isn't one of them. Highmark's cash buys it the right to appoint 75 percent of Saint Vincent's board of trustees.

The picture emerging is one of an iconic Erie institution swamped by change, dealing from a position of weakness and left to agree to a takeover by a Pittsburgh-based insurance giant with deep pockets. Since Saint Vincent remains Erie County's fourth-largest employer, here's hoping it works.

The dynamic would have been very different if the people leading Saint Vincent in the late 1990s hadn't pulled the plug on a different deal. That one would have consolidated Saint Vincent and Hamot into a single health system and altered the chain of events that culminated in 2011 with Hamot affiliating with the University of Pittsburgh Medical Center.

The agreement was close to complete when Saint Vincent officials decided they couldn't live with conditions imposed by the state Attorney General's Office. After Saint Vincent killed the deal in 1998, Hamot CEO John Malone said the two hospitals had "missed an opportunity here that I'm absolutely convinced will never come our way again."

It's possible even that consolidation would have amounted to a holding action, and that the combined health system would have ended up being swallowed by bigger players anyway. But now it's all but certain that from now on the most important shots at Erie's two biggest hospitals will be called from Pittsburgh.

The collapse of the 1998 consolidation deal sent Hamot and Saint Vincent back to their familiar, no-holds-barred struggle for competitive advantage and market share. As I reviewed dozens of Erie Times-News reports tracing the arc of what's happened since then, there was no ignoring the pattern of Hamot steadily getting the better of things on its way to passing Saint Vincent in patient revenue and employment.

And as market and political forces pushed our region's biggest medical players into the arms of behemoths, the results to date stand as one more instance of that. Just look at the two hospitals' consolidation deals and recent financial performance.

Highmark has agreed to kick in $20 million to stabilize Saint Vincent's books and another $40 million in capital investments over three years. That's serious cash for a hospital that in 2011 canceled the bulk of a $35 million renovation and expansion project.

But Highmark's investment doesn't begin to match the resources UPMC is bringing to bear at Hamot. Their 2011 deal calls for UPMC to invest at least $300 million in facilities and technology at Hamot over 10 years.

Hamot's upper hand is evident also in the two hospitals' balance sheets. The timing of last week's events set up UPMC and Hamot officials to crow about a record year just a couple of days after Saint Vincent laid out its plan to mop up the red ink there.

At its annual meeting Thursday night, Hamot announced it had collected a record $474 million in net patient revenue in the 2012 fiscal year, up $35 million from 2011. That translated into a $10 million operating profit, up from $169,000 in 2011.

Saint Vincent, meanwhile, posted an $11.9 million operating loss in the 2011 fiscal year. While the hospital hasn't released specific results for fiscal 2012, CEO Scott Whalen said it made "significant progress" but still lost money.

Saint Vincent and Hamot are caught up in a larger game of hardball between Highmark and UPMC as the two giants jockey for position in the hospital and insurance businesses throughout western Pennsylvania. There are a lot of financial and political variables in play in that competition, and in the overall economics of health care, that are hard to game out at this point.

Highmark's cash infusion certainly will give Saint Vincent some breathing room as it works to change its trajectory. Whether it's enough remains to be seen.

Write to Managing Editor Pat Howard at 205 W. 12th St., Erie, PA 16534, or e-mail him at [email protected]. Follow him on Twitter at twitter.com/ETNhoward.

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