By Christopher Guadagnino, Ph.D.

Published September 1997

• Community hospital strategy: Join a tertiary hospital network

• React to this article in the Discussion Forum.

Joseph J. Peluso is President and CEO of Westmoreland Regional Hospital.

PND: What is your rationale for remaining independent rather than affiliating with a large Pittsburgh-based hospital network?

JP: Quite frankly we didn’t feel that we needed to join one of those networks at this time. We are a full service comprehensive health care organization. Our hospital has 402 beds. Our medical staff represents all the major specialties and subspecialties and we provide services here like interventional cardiac cath, heart surgery, neuro sciences, the cancer services. Financially we’re very strong and sound. Once you become affiliated, those tertiary centers will then bring specialists from the urban centers into the local community. If you’re a facility that doesn’t have those specialties, then it might be worth your while looking at it. If you are at Westmoreland, it would tend to dilute those services in the marketplace, and it has the potential to channel those patients from the local community into the urban center. There could become greater and greater dependency on that tertiary center for clinical services. There’s even a sharing of acquiring primary care practices, of setting up satellite facilities in the community. They basically have ownership then—of those primary care physician practices or of the bricks and mortar of that satellite facility. I call it the Trojan Horse theory.

PND: What will Westmoreland do as it becomes surrounded by network-affiliated hospitals?

JP: Some of these affiliations have a 90-day out clause. I don’t know what level of commitment is there. To my knowledge, neither Frick nor Jeanette nor any of the other hospitals here in the county have merged with Pitt or Allegheny or Mercy West Penn. I think the community hospitals that are close to the city are the ones that are more likely merge or become affiliated. When you look at hospitals like Westmoreland, Conemaugh, Mon Valley, Butler, Beaver, Indiana, Uniontown—these hospitals really remain unaffiliated. Maybe they have a clinical affiliation with one of the tertiaries for certain services that they don’t provide, but it isn’t anywhere near a merger or a partnership that would pull patients out of the community.

PND: What do you say to physicians who might worry about losing patient referrals from surrounding hospitals if they do become affiliated?

JP: I think a physician has more security in providing good high quality, cost-effective care in their community where the patients are and want to be. As long as the patients feel that the outcomes are good with the local physicians and the local community based hospitals, that’s where the patients are going to want to go. If an exclusive arrangement has taken place, then it would be a different situation whereby the patient would be locked into a specific network of primary care physicians and specialists, sub-specialists and hospitals. I think that’s what some of the tertiaries were hoping would happen. That hasn’t happened and I don’t believe it will happen. The patient is still going to have the choice of where they want to go for health care, and if the primary care physician doesn’t give them that choice, then they can change primary care physicians.

PND: Will remaining independent reduce Westmoreland’s bargaining clout for insurance contracts, or risk excluding it from selective or exclusive network contracting in the future?

JP: That was one of the major arguments that the tertiary networks were making. Highmark Blue Cross/Blue Shield clearly stated that they are not going to grant those types of exclusive arrangements, and that they would rather work with the local community based physicians and hospitals. The majority of community hospitals like Westmoreland are low cost. We have good outcomes and we provide the geographic access in the local community. I think Highmark made the only wise business decision that they could make, not to grant exclusivity to networks that are high cost and don’t provide the geographic access to their purchasers. Those networks are very incomplete. The only physicians and hospitals they can count on are the ones that they have acquired.

PND: What is Westmoreland’s long term strategy?

JP: We currently have a PHO—physician hospital organization—with 150 physicians, that is a 50-50 partnership and is now positioned to contract with payors such as Highmark. Our active medical staff is around 200. We would like to work with other independent hospitals and form some type of consortium or alliance that can jointly purchase data and medical management support so that we don’t have to purchase it on an individual basis for each PHO. It wouldn’t necessarily have a joint contracting arrangement. If the marketplace would change and there was a need to contract through an alliance, that option would be available.

PND: What is your account of the Westmoreland physician survey which showed that a majority was in favor of joining one of the large networks?

JP: I don’t know how valid the survey was, how it was sent out, how the data was collected. I can understand why some physicians would take that position if they sold their practice and are now employees of UPMC. Many of our primary care physicians are very supportive of our strategy. Entering into risk sharing agreements is risky business. You have to have confidence in each other. I’m delighted that we have the majority of the medical staff in the PHO, and we’re moving forward with it. The physicians elect their leadership through the Medical Executive Committee. There are two peer-elected physicians that sit on the Board of Trustees and have input into any decision that’s made. The PHO has similar opportunities. There are committees dominated by physicians at least on a 60/40 basis. I guess the bottom line is that physicians here have choices. If they don’t want to be a part of this medical staff, if they don’t want to be a part of this community, if they don’t want to remain in private practice but want to become employees of a tertiary or urban center—they have that choice also.