Published November 1996

• React to this article in the Discussion Forum.

PND: Why did Forbes Health System merge with AHERF (Allegheny Health, Education and Research Foundation?

BR: We concluded that we ought to become a part of a larger integrated delivery system. We felt that this would ensure we would be addressing the issues of cost, quality and access and long felt that no single provider standing alone could effectively do that. We also believe that an integrated delivery system would deal with the myriad of fragmentation of care that is evident in health care delivery today. We are merging into a new subsidiary of AHERF which is Allegheny University Medical Centers (AUMC). We felt our visions were similar and that this was a good fit. Working with AHERF would ensure the preservation of the not-for-profit community health care provider, thus preserving our mission. We think that AHERF’s clinical and financial strengths add to the clinical and financial strength of Forbes Health System. Lastly, we’ve been working with an AHERF organization in the development of Pyramid Health, formerly known as SIDN (Southwest Integrated Delivery Network).

PND: What are the terms of the transaction?

BR: AUMC will become the not-for-profit subsidiary of AHERF. We (Forbes Health System) are merging into that organization and Forbes will have representation on the AUMC board of trustees. All existing Forbes assets are pledged to support Forbes’ existing facilities (only). Our medical staff will remain independent and self-governed. Our hospitals will continue to be licensed separately. We’re retaining the name of Forbes for our facilities. And no cash will change hands.

PND: How much autonomy will AUMC members have, being a subsidiary of AHERF?

BR: Forbes Health Systems will be governed by the board of AUMC of which we will have representative trustees. There will be certain reserve powers that AHERF’s board will maintain. Forbes will no longer have a board. AUMC will have a board comprised of whoever merges into it, us being the first. We will have trustees from the soon-to-be-dissolved Forbes board, who will go to form the AUMC board. And that will be a subsidiary to the AHERF board, which will have ultimate control and reserve powers. Each individual [hospital] member coming in will still have an executive as it has until now. AGH is a separate subsidiary equal to AUMC on the subsidiary side of AHERF.

PND: How are your physicians affected by this?

BR: There are no anticipated changes with any of the relations we have with our existing medical staff. There will be no takeover by AHERF specialists or hospital-based physicians in Forbes facilities. All the agreements we have in place will be honored by AHERF and AUMC. We would use the consolidation as a building block on the existing independent and quite excellent medical staff that we have. AHERF will become a resource available to our medical staff and any other respective member’s medical staff. Because AHERF has the largest medical school in Pennsylvania and one of the largest in the country, if we need to develop an additional specialty or service that is not available, AHERF is there to assist us as a resource through multiple means, not just through physicians, but through their medical school, etc. There is no contemplated change with chairmen of departments or elected members of the medical staff. And all contractual relationships that exist will remain. We have one residency program, in family practice. We have a free-standing, recently fully accredited, and we’re already a training site for Allegheny University of the Health Sciences Medical School for having third- and fourth-year medical students rotating through Forbes for training in family practice. There are no mandated referral patterns. Doctors will be encouraged to maintain the patient/physician relationships.

PND: Do you expect changes in referral patterns?

BR: Forbes, as a community hospital, has a strong and large primary care base of physicians which usually do 100 percent of their work at community hospitals. We expect that our primary care physicians will continue their referral patterns to the specialists on the staff of the Forbes Health System. When requested and when necessary, we would use the resources of AHERF or any tertiary facility of AHERF at the request of the referring physician.

PND: In what ways will the merger affect costs for institutions, patients and physicians?

BR: AHERF, as the parent of a number of subsidiaries, has created a centralized source of support services for its statewide system. So the fact that Allegheny General takes advantage of those centralized or shared serves, now Forbes will be able to do the same. It’s through the elimination of duplication and centralization of services on a shared basis that Forbes will be able to take advantage of reducing costs, which ultimately should benefit patients, the same way Allegheny General has those cost savings now.

PND: How will the merger affect Forbes system’s facilities?

BR: We are comprised of one acute-care hospital, Forbes Regional in Monroeville; one specialty hospital in Wilkinsburg, Forbes Metropolitan; Forbes Hospice; and our skilled nursing facility in East Liberty, Forbes Nursing Center; and we do have some ambulatory sites that are driven by primary care practices that are aligned with Forbes. As a result of this merger, we expect the commitment to the facilities and the services we provide to be strengthened. We don’t see any elimination.

PND: Do you have a timetable for adding hospitals affiliated with AUMC?

BR: We think that given the market conditions and the environment and the competition, we would expect within 6-9 months that others who have been extended the invitation to become members of AUMC will begin to make those decisions. I’d say within the next 12-18 months, it’s a good bet. If anything, I would see it expedited rather than delayed.

PND: UPMC reduced its number of beds after some of its recent mergers. Will cost-cutting measures significantly change the mission or staffing at the Forbes facilities?

BR: I don’t view the strategies the same at all. AUMC is not about acquiring as many facilities, and not about acquiring as many beds. If that were the case, we would have the dilemma of then redistributing those beds and reducing beds. AHERF’s strategy to build AUMC is very deliberate to be very selective and work with strong community hospitals and medical centers or ambulatory centers.

PND: How are ownership and governance roles of Pyramid Health’s physicians at Forbes and AGH affected by the merger?

BR: We don’t see any effect on either Pyramid or the existing members of Pyramid at this time. Becoming part of a single economic unit and becoming part of the AHERF system will build upon what Pyramid is trying to achieve. If Forbes and Allegheny General, as Pyramid hospitals, become stronger and improve in quality, cost and access as a result, Pyramid will improve.

PND: Pyramid Health was created (as SIDN) to allow collective contracting clout with insurers, while preserving autonomy of the member hospitals and physicians. Is that altered by this merger?

BR: I don’t believe so. It strengthens it. Because two Pyramid hospitals have decided to work closer together in an arrangement that is a single economic unit, we believe it strengthens the mission of Pyramid.

PND: In what ways will AUMC have increased leverage with insurance carriers?

BR: AHERF now becomes the single largest integrated delivery system in the state of Pennsylvania and to the extent that it is a statewide organization, with a wide array of services, it becomes extremely attractive to the insurance companies to be the provider of care on a contractual basis, based on cost, quality, access, size and with a comprehensive list of services.

PND: What role would Pyramid Health play if most other of its hospitals merge with AUMC?

BR: Pyramid’s primarily a managed care strategy dealing with contracting. Clearly AHERF and Forbes have chosen Pyramid and its main strategy and we will continue whether additional members come in or not.

PND: Pyramid’s hospitals are the most likely ones to be merged with AUMC, since they are already in the network. Are you looking at outside hospitals to join AUMC?

BR: AHERF will, through AUMC, extend additional invitations, very selectively, working with currently strong health care providers, but will do so in tandem with Pyramid, not in competition with the Pyramid partners. Pyramid is a risk-sharing mechanism to deal with managed care. The affiliation of Forbes into AHERF is the development of a fully integrated delivery system.

PND: Do you see AUMC becoming a successor to Pyramid Health?

BR: I don’t think it’s appropriate to speculate on that.

PND: Can Pyramid compete without being more fully integrated?

BR: Yes it does and I think becoming more integrated only strengthens it. It is a stronger system the more integrated it becomes.

PND: If Pyramid’s hospitals integrate with AUMC, does that mean the physicians are going to lose their ownership and governance role in Pyramid?

BR: Absolutely not. We designed Pyramid, or SIDN, from the inception that this be a physician-hospital network. It is currently equally governed and it will remain so now and into the future.

This is an unalterable partnership of hospitals and doctors. That’s the basis along which it was founded, that’s a major belief, and we will remain committed to that. I think the best option is that they affiliate with a comprehensive network and that means having all of the services beyond just community hospitals. That clearly was our vision and clearly one of the driving forces that made AHERF, through the development of AUMC, very attractive to us. I don’t believe, in the long term, for economic reasons, quality reasons, and what’s ultimately best for the patient, having an all-community hospital (network) is preferable to a fully integrated, comprehensive system. This is a structural arrangement by which community hospitals can thrive in the future. I do not believe this is a survival strategy. This is a strategy that takes an existing, strong community facility and makes it stronger, enables it to become stronger in the future and preserves its mission.