The 317-bed Jamestown hospital announced Thursday a new affiliation agreement, building on a relationship that began in 2012 with UPMC Hamot in Erie, PA.
Though UPMC previously stressed that the affiliation between WCA and the Pittsburgh-based hospital chain would not be a merger, this deal moves in that direction. UPMC will now serve as a parent to WCA. The Jamestown hospital becomes part of a network that includes more than 20 hospitals.
UPMC also serves as parent to operations in nine international locations including Ireland, China, Kazakhstan, and and Singapore, but this is the first time UPMC has expanded its domestic reach outside Pennsylvania.
The decision to do so followed successful expansion of the hospital chain’s operations at UPMC Hamot, said Leslie Davis, executive vice president and chief operating officer for UPMC’s Health Services Division, in an interview with the Pittsburgh Business Times, a sister publication of Buffalo Business First.
“We’ve had a very successful integration with Hamot for the last five years,” she said. “Hamot had its own relationships with community hospitals either through physician relationships, or its ability to help with infrastructure, or consulting, or billing advice, or information tech. Hamot had some of these relationships prior to [Hamot officially integrating into the UPMC system in February 2011], and with UPMC’s involvement, Hamot was able to offer even more support to hospitals including WCA.”
The deal brings considerable financial benefits to WCA: UPMC has committed to invest at least $25 million over the next 10 years to support recruitment and retention of physicians, as well as upgrades to facilities, programs and infrastructure, including information technology and electronic medical records capabilities. UPMC has also agreed to relieve WCA’s debt and cover its pension obligations, freeing up significant additional monies for WCA development.
That’s important, as independent hospitals like WCA have struggled to meet state and federal reform obligations. WCA ended 2014 with a small surplus on revenue of $93 million, down slightly from $96 million the prior year, a year that also included a $1 million deficit. The hospital’s net assets dropped from $23 million to $8 million.
By contrast, UPMC had operating income of $338 million on revenue of $12 billion for the fiscal year ended June 30.
Betsy Wright, WCA’s CEO, told Business First in an interview late last year ongoing requirements related to health reform and reimbursement continue to challenge hospitals.
“We’re all trying to do more with less,” she said. “That bending of the cost curve means that hospitals will be reimbursed less and for all hospital CEOs that’s a challenge to adopt and prepare. For WCA, it’s over a $45 million decrease over a 10-year period.”
WCA becomes the fourth independent hospital in Western New York to merge or affiliate with a larger health system: In 2014, Mount St. Mary’s Hospital and Health Center in Lewiston became part of the Catholic Health system; while United Memorial Medical Center in Batavia joined the Rochester Regional Health System. And last month, Jones Memorial Hospital of Wellsville announced it will join the UR Medicine network.
Wright has talked about the importance of affiliations with larger health systems to bolster independent hospitals. Besides UPMC, the hospital has existing relationships with both Catholic Health and Kaleida Health in Buffalo for cardiac and stroke services, as well as pediatric referrals at its Women & Children’s Hospital of Buffalo. The geography of the region, however, and its proximity to the state line made the relationship with UMPC Hamot valuable, Wright said.
“We’ve tried to keep good relationships and really look at those relationships that provide the best benefit for patients that we’re fortunate to serve here,” she said.
Davis, UPMC’s COO, said said the entrance into New York is part of a broader expansion for the system that includes increasing overall patient numbers versus charging more for services. It’s part of a strategy of bringing more patients into the system to raise revenue.
“Our ongoing strategic outlook, both opportunistically and regarding what makes sense for us, is that we’re all about thoughtful expansion and what makes most sense for UPMC and our partners,” she said, adding that UPMC is also fielding inquiries from community hospitals who are looking for partnerships through service lines, or partnerships, or acquisitions. “We want to be very careful about how we expand, but we do want to expand our footprint.”
The new affiliation with UPMC is contingent upon a due diligence period and regulatory approvals by the New York State Department of Health, but could be finalized by late summer 2016.