Nason CEO sees merger as inevitable

ROARING SPRING – On Friday, toward the end of a presentation designed to show why things can’t stay the same for Nason Hospital, CEO Garret Hoover held up a sheet of paper representing the supplies the hospital needs to do business.

Hoover had just finished making a case to a Mirror reporter that Nason is efficient, in the black, with good patient satisfaction and compliance with core medical protocols.

But the small community hospital can’t keep going on its own, after 113 years, he said.

Instead, it needs to continue pursuing an affiliation course that began in 2010 with Altoona Regional Health System – which in turn is pursuing an affiliation with Pittsburgh health care giant UPMC.

“We need the economies of scale that UPMC can bring,” Hoover said. “They’re a $10 billion organization. We’re $35 million [annual net income].”

Who gets the better price, he asked rhetorically.

An Altoona Regional spokesman declined to comment for this story, and a UPMC spokesman didn’t reply to an invitation to comment sent Friday afternoon.

The little hospital can’t keep going long term as an independent because the federal government continues to squeeze the excess out of health care with cuts in Medicare reimbursement, an expansion of Medicaid – which is a losing proposition for providers – and reimbursement incentives for vertical integration.

Only large organizations that can provide a “continuum of care” – ultimately, perhaps, cradle to grave, can compete.

Payments are trending away from “fee for service” to bundling for whole ranges of services, which may ultimately mean insurance companies paying health care institutions a sum of money for providing medical care to a group of people based on the actuarial likelihood of their incurring medical costs.

Only larger organizations can handle such an environment.

What if Nason tried to go it alone anyway?

“Not an option,” Hoover said. “We would be unable to sustain.”

It’s not necessarily what Cove residents want to hear, because there’s uncertainty.

Most people in the Cove are in two camps, according to Nason emergency room doctor John Baker. The minority thinks Nason and Altoona have already merged. The majority “hope what happened to Bon Secours won’t happen here,” Baker said.

Bon Secours Hospital merged with Altoona Hospital in 2004 to form Altoona Regional, amid controversy and angst among advocates of the smaller institution.

Bon Secours closed last year.

In Nason’s case, Hoover said he could not guarantee the long-term existence of Nason.

“I’m not going to speculate,” he said. “I really don’t know.”

The goal, however, “is to continue to provide services through this facility,” he said.

Baker thinks Nason has a better chance than Bon Secours for long-term survival, because while Bon Secours and Altoona were in the same city, Nason is 16.5 miles distant.

It’s thus less redundant.

“For now, I don’t think we’re in danger,” Baker said.

An affiliation will likely mean a streamlining of operations at Nason, and maybe loss of some duplicate services, but not a loss of basic patient care and doctor services, Baker predicted.

Actually, “hooking up with a major system” – likely an actual merger, according to Hoover – “could present opportunities that the region doesn’t presently have,” he said.

That could mean specialist services in the Cove or Altoona that are currently not available in Blair County, he said.

“But [jobs] could be lost whether we’re part of an integrated system or not,” he said. “It’s more likely to happen if we remain independent.”

Nason has demonstrated efficiency statistically, with operating expenses, salaries and personnel levels below the national median, relative to size, Hoover said.

The hospital also scored well over the national average on key questions in mandatory patient surveys, according to Hoover. Seventy-seven percent gave Nason an overall score of nine or 10 – compared with 69 percent of hospitals nationally getting those kudos from customers, he said.

Similarly, 78 percent of Nason patients said they’d recommend the hospital to others, compared to 70 percent nationally, he said.

Nason also has a positive operating margin. But that margin for fiscal 2012 was only 0.5 percent on $33 million, which is “weak,” Hoover said.

And a 2 percent Medicare cut is coming at the end of March.

“That’s a big deal,” Hoover said, noting half of Nason’s business is Medicare.

Medicare payments in this area are already low, according to Hoover.

The Hospital Council of Western Pennsylvania estimates that hospitals in the region lose an aggregate $70 million a year because the Medicare wage index here is too low, according to Hoover.

The Medicare cuts are a major incentive for consolidation, because consolidation is one of the surest ways to become more efficient.

“It’s the economy of scale,” Hoover said. “It’s all about size.”

He can’t find any more efficiencies on his own, he said. But he said he intends to find them now through “partnerships [with] powerful players” that can get better prices, tend to have the best practices, can attract and retain staff and have better access to less expensive capital, he said.

Nason has plenty of company in its financial weakness. More than half the nation’s 2,000-plus rural hospitals are in the red, according to an article in Healthcare Finance News provided by Hoover.

Nason has plenty of company in its eagerness to merge.

For 2012, the number of merger deals was up 18 percent, and the number of hospitals involved in those deals was up 66 percent – an indication that previously merged multiple-hospital systems are combining with other such systems, Hoover said.

“It’s staggering,” he said. “It’s happening in every market.”

Few independent community hospitals will remain in the nation within five years, Hoover predicted.

Altoona and Nason agreed to discuss an affiliation because together they believed they could attract the interest of a larger health system like UPMC, which runs the local hospital in Bedford County.

Nason and Altoona have already joined together in some exploratory initiatives involving a supply contract, pharmacy services, tele-radiology, a county needs assessment and information technology.

Nason supports Altoona’s affiliation push with UPMC, Hoover said.

“We want to be part of that,” he said.

The public wants to know more, Hoover conceded, and he said he’d like to tell them.

“But I don’t have a clear picture,” he stated. “We’re going to try to do the right thing.”

Mirror Staff Writer William Kibler is at 949-7038.