As it expands in Western Pennsylvania, Allegheny Health Network reignites rivalry with UPMC
Welcome to a new chapter in Western Pennsylvania's health care war.
A massive, $700 million expansion announced Wednesday by Allegheny Health Network reignited one of the region's long-running rivalries: Dominant UPMC versus the smaller but resurgent parent of Pittsburgh's Allegheny General Hospital.
The battle began heating up in August when UPMC, which reported revenues of $14 billion for the 2017 fiscal year, unveiled a new outpatient medical center in Hampton and announced plans to build similar medical malls throughout the region. Potential locations include Cranberry and Natrona Heights, where AHN operates the Alle-Kiski Valley's largest employer, Allegheny Valley Hospital.
This week, Highmark Health and AHN returned fire with a whopper: Not only are they building a brand-new hospital in Pine, they plan four smaller hospitals that will cater to people who don't require long stays and need outpatient care.
On top of that, Allegheny Health Network is looking to renovate its existing facilities, including AGH, Forbes Hospital in Monroeville, West Penn Hospital in Bloomfield and Jefferson Hospital in Jefferson Hills. Plans for Allegheny Valley Hospital will come later this year, Highmark President and CEO David Holmberg said.
“There's a real need and a real opportunity,” he said about the Alle-Kiski Valley market.
Stephen Foreman, an associate professor of health care administration at Robert Morris University, was a bit baffled by AHN's maneuvering.
“It's never stopped,” he said of the steep competition between hospital systems. “But are these new facilities needed? These appear to be more examples of what happens when decisions are made strategically rather than by the market.”
The bitter feud between UPMC and Highmark dates back years and reached a peak in 2014 when their longstanding commercial contract expired. The contract gave Highmark insurance customers in-network access to UPMC doctors and hospitals. A state-brokered consent decree sought to smooth the transition and shield patients from the fallout, but the rivals clashed over its interpretation.
While the contract dispute has been settled, competitive volleys between the rivals have emerged in recent months:
• UPMC has been looking for more than a year to build a $200 million hospital in the South Hills, not far from where AHN operates Jefferson Hospital. Two potential locations have already come and gone. An owner of the Practice Tee Golf Center in Jefferson Hills said he hopes to sell part of his property early next year to UPMC. Meanwhile, AHN plans to expand the emergency department at Jefferson.
• AHN says it is expanding some surgical services at Forbes Hospital in Monroeville to accommodate patient growth. It will break ground in October on a 50,000-square-foot perioperative center. It also will increase by 50 percent the capacity for cardiac procedures. Forbes is less than a mile away from the $250 million UPMC East, which opened in 2012.
• Over the summer, Highmark Health sought and obtained greater flexibility to invest in AHN. The Pennsylvania Insurance Department loosened requirements it imposed when Highmark formed the hospital system in 2013. Highmark Health no longer has to notify the department of any transfers to AHN over $100 million.
UPMC declined to comment about its competitor's plans.
Strategy for success
During a Pittsburgh news conference, Holmberg appeared to be confident about Highmark's strategy.
“From our perspective, the region does have a lot of beds. We want to make sure that we have the right beds and they need to be in the right locations at the right time,” Holmberg said. “And that's what this strategy does; it moves them closer to where the action is and where people are. Our goal here again is to reduce the number of people in hospitals and provide more services in the outpatient settings and the neighborhoods.”
Officials have said the seven-hospital AHN is in the midst of a financial upswing. It reported an operating gain of $13 million for the half-year following a 2016 operating loss of $39 million.
Allegheny Health Network's four so-called micro-hospitals will be built through a new partnership with Texas-based Emerus, a for-profit developer and management firm. AHN and Emerus will split construction costs with Emerus managing the hospitals.
“We're very comfortable competing,” said David Stillwell, chief operating officer of Emerus. “We like what Allegheny Health Network and Highmark are doing here. We were built on patient experience, and we know that when we bring that experience into a market that gives us a competitive advantage.”
Locations of the four hospitals have not yet been identified, but each will offer 10 to 12 short-stay, inpatient beds, an emergency department and other clinical services.
AHN's expansion is expected to create 800 health care jobs. AHN employs about 17,000, while rival UPMC employs nearly 80,000.
Construction of the new AHN hospital in Pine is expected to begin next year with completion by 2021. It will be adjacent to its Wexford Health and Wellness Pavilion that opened in 2014.
Allegheny County Executive Rich Fitzgerald, who attended the news conference, said many longtime residents grew up with Allegheny General and West Penn hospitals.
“It wasn't that many years ago that the future of some of those facilities was in doubt,” he said. “And now the future for those facilities for our neighborhoods and for our community is very bright for lots of reasons.”