Rx for Rural Health: Consolidation can be savior for some small hospitals

Michael Roknick, The Herald, Sharon, Pa.
·5 min read

Mar. 27—The way Jim Feeney saw it, there was no other way — Sharon Regional Health System could not survive long-term as an independent entity.

Sharon Regional, Mercer County's largest employer with more than 1,200 employees, needed a white knight, a larger entity to absorb the system to avoid financial ruin.

"What helped is we saw this early on before things could have gotten bad," Feeney, who was on the local nonprofit health system's board for 37 years said.

Community Health System, based in Franklin, Tenn., bought Sharon Regional in 2014 and sold the hospital — now called Sharon Regional Medical Center — on May 2, 2017, to Steward Health Care System of Boston.

For those running the century-old hospital, the stakes were high, Feeney said a bad decision by its board could have been disastrous to the local economy. Before the sales, Sharon Regional had been a non-profit entity, and both Community Health and Steward are both for-profit entities.

But the health care economic climate, which was forcing small and independent rural hospitals like Sharon Regional to seek consolidation or die, was changing. Fenney said cascading financial realities forced Sharon Regional to seek a buyer:

— The hospital needed new technologies, which would cost millions, to be competitive.

— Bond dealers had become reluctant to deal with smaller hospitals like Sharon Regional, depriving it of capital to make the necessary investments.

— With bond funding unavailable, the hospital would be forced to seek bank loans — which would have resulted in a heftier interest rate than a bond.

Adding it all up — the likelihood that purchasing equipment and other upgrades would force the hospital into significant debt — could have broken the hospital's back, Feeney said.

Other factors also played a role.

"We had a lot of patients who were on Medicaid, which has a low reimbursement," he said. "And we provided many services for people who didn't have the ability to pay. There are a lot of problems impacting the bottom line."

Feeney wasn't the only one concerned. Steve Gurgovits, now retired as CEO and chairman of FNB Corp., served on Sharon Regional's board for more than 20 years.

"Every 18 to 24 months, somebody was coming out with new piece of equipment that was always more impressive than the one you had," Gurgovits said. "And the doctors always want the best equipment that they can get."

But Sharon Regional needed that equipment to attract top-flight physicians.

"So many doctors were looking at bigger markets like Cleveland and Pittsburgh," he said. "We weren't seen as the better place to go."

So Sharon Regional officials began looking at consolidations years before the Community Health System buyout. The hospital made overtures toward merging with Horizon's hospitals in Farrell and Greenville.

"We had a meeting between our two boards," he said. "But as it happens with banks, unless your CEOs embrace the concept they'll come up with lots of different reasons why it won't work the way you think it will."

The talks broke down and UPMC acquired the Horizon hospitals in 1998.

As time passed, Gurgovits said it was clear to Sharon Regional's board that it had to sell. Because the hospital was a non-profit acquired by a for-profit entity, the deal required placing more than $50 million of the proceeds into a charitable group, the Buhl Regional Health Foundation. The non-profit organization funds a variety of activities and programs to promote health in the region.

The Buhl Regional Health Foundation has awarded almost $2 million in grants since 2017.

"This was a win-win for everybody," he said.

Both men agree healthcare consolidation isn't just a rural phenomenon.

"It's everywhere," Feeney said.

In a perfect world, Gurgovits said he would rather have a hospital under local control.

"But the hospital we have now is viable, it's attracting doctors and it's investing in technology," he said. "I think that's good for the community regardless of the name over the door."

Expansions, mergers, breakups

Geisinger is synonymous with healthcare in the Susquehanna River Valley region of Columbia, Montour, Northumberland, Snyder and Union counties.

The hospital system's history began in Danville. The Montour County borough remains home to Geisinger's expansive flagship campus, Geisinger Medical Center.

Expansions, acquisitions and mergers, plus its self-branded insurance plans, all in combination with the quality of its medical care, helped Geisinger grow far beyond it area of origin to become a widely recognizable name in healthcare.

Geisinger worked with other hospitals to open Wyoming Valley Medical Center's predecessor in 1981, NPW Hospital, near Wilkes-Barre in Luzerne County, and in 1982 opened its Marworth addiction treatment center in Lackawanna County.

In 2005, Geisinger acquired Mercy Hospital in Wilkes-Barre, Luzerne County, which become Geisinger South Wilkes-Barre.

It acquired three more hospitals in 2012 with the additions of Bloomsburg Hospital in Columbia County, Shamokin Area Community Hospital in Northumberland County and Community Medical Center in Lackawanna County. The following year in 2013, it acquired Lewistown Hospital and later in 2017, Jersey Shore Hospital.

In 2019, Geisinger opened St. Luke's Hospital in Schuylkill County.

But the health system has experienced struggles in this same arena. After nearly three years, Penn State and Geisinger split their enormous health system merger in 1999, returning Hershey Medical Center to the university.

Holy Spirit Health System became a Geisinger affiliate in 2013 and rebranded with the Geisinger name, but ownership transferred to Penn State Health in 2019. In 2020, Geisinger severed its five-year merger with New Jersey's AtlantiCare health system.

In early 2021, a pending settlement between Geisinger, Evangelical Community Hospital in Union County and the Department of Justice was announced. Justice challenged Geisinger's acquisition of a 30 percent stake in its regional competitor. The pending settlement awaiting a judge's final order mandates that Geisinger hold no more than a 7.5 percent stake in Evangelical, which is allowed to keep $20.3 million in payments already made for its PRIME hospital expansion project and the entities' joint venture at a health and recreation center in Union County.

(Sunbury) Daily Item reporter Eric Scicchitano contributed to this story.