Carlisle Regional Medical Center is now officially part of PinnacleHealth.
The hospital, and its new owners, held a flag-raising ceremony Friday morning to officially mark CRMC’s transition. But for now, at least, not much has changed apart from the logos.
“I really want to emphasize that we’re doing this together,” PinnacleHealth CEO Phil Guarneschelli said. “We’re moving together as organizations and doing this as one effort, in order to make Carlisle’s health care better for everyone involved.”
PinnacleHealth’s takeover was anything but hostile — all of CRMC’s staff in good standing were asked to stay, including executive leadership. In fact, CRMC’s CEO, David Steitz, characterized the acquisition as a return to form for his hospital.
“I see this as returning to our not-for-profit roots here in Carlisle,” Steitz said.
Since 2014, CRMC had been owned by Community Health Systems, a Tennessee-based corporation that took over the hospital as part of a buyout of Health Management Associates, which had purchased CRMC roughly a decade earlier.
HMA was, and CHS is, a publicly traded for-profit corporation with hospitals all over the country. PinnacleHealth, on the other hand, is a nonprofit that operates specifically in the Midstate region.
According to Guarneschelli, it was PinnacleHealth that approached CHS about the purchase. The health system had been looking for new outlets since its proposal to merge with Hershey Medical Center hit regulatory roadblocks last year. State and federal agencies declined to certify the deal fearing it would create a health care monopoly for parts of Harrisburg and Dauphin counties.
But even with the infrastructure it had, which includes several sites in Harrisburg as well as West Shore Hospital in Hampden Township, PinnacleHealth was growing at a strong clip, and needed to grow its base.
“We’ve been growing organically at 8 or 9 percent,” Guarneschelli said. “Since the deal with Hershey failed to win favor, we still needed room to grow, and this was a great step.”
PinnacleHealth struck a four-hospital deal with CHS, including CRMC as well as Memorial Hospital of York, Lancaster Regional and Heart of Lancaster Regional in Lititz.
Investment analysts had been looking for CHS to liquidate significant assets since the end of last year, when CHS indicated it would be booking a $1.7 billion loss, much of it attributable to a write-down on the value of underperforming hospitals. The evisceration of shareholder earnings saw CHS stock drop 50 percent, but the company said it planned to raise $1.5 billion by selling off up to 25 hospitals.
The financial performance of CRMC, at least under CHS’s direction, was mixed. According to data from the Pennsylvania Healthcare Cost Containment Council, a state oversight agency, the hospital ran a profit margin of 13.55 percent from the 2014 to 2016 fiscal years, comparatively higher than its peers. PinnacleHealth was running a profit margin of 7.03 percent over the same period.
But CRMC’s net business has been in decline, from $136 million in net patient revenue in 2013 to $114 million in 2016, according to council data.
Guarneschelli said PinnacleHealth is confident it can get CRMC doing more of what it does best, and more efficiently.
“We’re a nonprofit, but we still have to find a way to make money,” Guarneschelli said. “It’s just that, as a nonprofit, we can invest more of that back into our system rather than having to pay shareholders.”
CRMC will benefit greatly from riding on PinnacleHealth’s contracts for service — everything from linens to medicines and beyond, Guarneschelli said. He also said PinnacleHealth plans to immediately invest in computer infrastructure to create an integrated medical records system at CRMC that is compatible with all of PinnacleHealth’s assets, including other hospitals as well as outpatient facilities.
“It used to be you had an inpatient record and an outpatient record and they didn’t talk to each other,” Guarneschelli said. “That’s the first thing we want to improve.”
On a national scale, many health care providers are re-shuffling services in order to deal with a changing landscape. Some have pointed to changes in the insurance industry, making it easier to reimburse providers who are able to provide both primary and specialty care.
Others have pointed to the simple fact that hospital beds are in less demand. Since 1998, according to the American Hospital Association, health care costs have averaged a 5.8 percent annual increase, but inpatient spending has actually dropped 1.9 percent.
As outpatient services replace inpatient ones, hospitals have had to expand their offerings to keep their cash flow, the AHA said, with mergers and acquisitions a ready way to reduce overall cost and financial risk. According to Kaufman Hall, a health care financial services firm, health care mergers and acquisitions have accelerated from 66 deals in 2010 to 102 in 2016.
In many cases, this results in complex inpatient procedures being centralized within growing health care systems, said Dennis Scanlon, director of the Center for Health Care and Policy Research at Penn State.
“The trend is to refer out the more complex cases. The thinking is ‘maybe we can cut back on the complex care at certain locations and refer it to another one of our facilities, and keep the other facilities concentrated on patients who walk in the door from a primary care perspective,” Scanlon said.
Guarneschelli said it was too early to tell if this kind of streamlining could be done in the Midstate.
“We’ll have a planning process that will kick off shortly, and that process will try to identify any areas where we can integrate,” Guarneschelli said. But CMRC and West Shore Hospital are still relatively far apart, and the county’s population is dispersed enough, that many patients may not be comfortable going between.
“Hospitals are such a local community of providers,” he said. “You’re still talking about facilities that are 30 miles apart, so that restricts your options.”