Penn partners with Lancaster General to draw patients

Posted: February 13, 2014

The University of Pennsylvania Health System and Lancaster General Health announced an alliance Tuesday that could increase Penn's share of patients who need the most complex levels of care.

"That's not going to happen in one day," said Ralph W. Muller, chief executive of the Penn health system. "These are patients who are now going to Jefferson, they are going to Hopkins, they are going to Penn State, and other areas. Over a period of time, more of those patients will come to Penn, and that does benefit us."

A financial benefit to Lancaster General could be better pricing at Penn for high-level treatments and procedures, such as heart transplants, said Thomas E. Beeman, president and CEO of Lancaster General.

Transplant prices matter to Lancaster General because it is responsible for the overall cost of taking care of 18,200 Medicare beneficiaries under a program launched Jan. 1.

The alliance gives Lancaster General a clear channel to Penn's services, Beeman said.

"Penn has tremendous expertise in breast reconstruction," Beeman said. "We do a lot of breast surgery here, but they have a reconstructive breast surgeon who has privileges now at Lancaster General and will be able to do the reconstructive procedure right here."

The alliance with Lancaster General, which operates a 533-bed hospital in Lancaster, follows Penn's acquisition last year of Chester County Hospital and extends Penn's reach farther into Pennsylvania.

While Penn's arrangement with Lancaster General is not an acquisition, it allows the two systems to enjoy some of the benefits of the consolidation. Mergers are widely expected by experts as systems try to withstand the pressures of health reform - driven both by the government and by market forces.

Penn, which already supplies complex cancer care to a network of more than a dozen hospitals, and Lancaster General are both financially strong, but not immune to trends, such as fewer hospital stays, as care becomes better managed outside hospitals and as patients put off treatments they can avoid.

Penn's admissions have fallen 9 percent from a recent peak of 80,739 in 2010 to 73,782 in the year ended June 30. Lancaster General's admissions were off 8 percent to 36,767 in fiscal 2013 from 40,143 in fiscal 2009, a recent peak.

Fiscal 2013 revenue at the Penn health system was $3.5 billion, with an operating profit margin of 5.3 percent. Lancaster General's revenue was $920 million, with an operating margin of 3 percent.

As a relatively high-cost academic medical center, Penn faces the challenge of convincing government, insurers, and employers who pay health-care bills that its higher costs are worth it in the long run.

"You get a good value from us because we're more likely to diagnose it correctly the first time," Muller said, "and have very good outcomes, whether it's transplants or high-risk maternity."

The alliance with Lancaster General gives Penn doctors a broader stage on which to make that case.

"Part of what we're really doing with Lancaster and others is establishing long-term relationships," Muller said, "so that we can provide long-term value to the people who have to pay these bills."



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