PVHS, UCH on path toward health unification

FORT COLLINS/AURORA – Rulon Stacey gets a little irked when someone refers to a proposed joint operating agreement between Poudre Valley Health System and the University of Colorado Hospital as a merger.

Or that such an agreement will create a big, impersonal health-care system.

“First, it’s not a merger, and we hope to make that clear,´ said Stacey, CEO of PVHS. “My only response to that (concern) is both organizations have built our reputations on providing quality care to our patients. It will be the goal of the new organization to duplicate that throughout the network.”

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Poudre Valley Health System, which includes Poudre Valley Hospital in Fort Collins and Medical Center of the Rockies in Loveland, and the University of Colorado Hospital in Aurora have signed a letter of intent to explore a joint operating agreement.

Under the proposed agreement, both systems would retain control of operations at their respective facilities but would create a joint operating board to oversee strategic direction and an overall budget for the unified system.

If the joint operating agreement becomes a reality, it would bring together two of the most successful and respected health-care systems in the state, each bringing its own strengths to the table.

“Clearly, Poudre Valley is one of the most highly functioning community hospitals in the U.S.,´ said Bruce Schroffel, president and CEO of UCH. “They have a whole set of strengths we do not have.”

UCH partners with the University of Colorado Denver School of Medicine and the hospital’s physicians are members of the medical school faculty, but it is not part of the university and receives no direct state general fund support.

“We have a strong research focus and teaching component, and we’re (both) only two of 39 hospitals in the world that have gotten the Magnet designation for nursing (excellence) three times,” he continued. “We think the synergy of the two will make us the best-quality system in the state.”

Unusual partnership

Both hospital systems have earned numerous awards in health care, including the Malcolm Baldrige National Quality Award bestowed on the nonprofit PVHS in 2008.

UCH, which has 47 operating specialties, was ranked as the best hospital in the Denver metro area in March by U.S. News and World Report.

Schroffel notes that the proposed agreement is unusual in that it would be between two successful organizations – a marriage of equals.

“We’re both extraordinarily successful systems,” he said. “We’ve just had the best four years in our history, and often in an agreement like this it’s not that way.”

Steven Summer, president and CEO of the Colorado Hospital Association, said the proposed combination of resources by PVHS and UCH is an example of a trend being seen elsewhere around the state and throughout the nation.

“It’s a continuation of what has been happening in Colorado and around the country from health-care reform and the economy,” Summer said. “I think what we’re seeing is care will be delivered along a full continuum, and this allows for that.”

Stacey agrees. “Between the two organizations there’s very little you could need that couldn’t be provided,” he said.

Summer noted that other Colorado health systems – notably Centura and Health One – have joined forces with other hospitals to create stronger organizations.

The impact of expected declines in Medicare and Medicaid reimbursements to hospitals under health-care reform can be reduced to some extent by unifying, Summer said.

“It doesn’t offset it, but certainly there are some economies of scale and resources in a bigger organization so you don’t have to duplicate services,” he said. “As far as costs go, I think it brings nothing but more economies of scale and probably will be less expensive to provide services than if they had to do it on their own.”

And there are other advantages, Summer notes, including a better ability to borrow money and recruit the best medical personnel.

Banner circumspect

In Northern Colorado, PVHS has been in competition with Phoenix-based Banner Health System, one of the nation’s biggest health-care systems. Banner owns McKee Medical Center in Loveland and has a contract to operate North Colorado Medical Center in Greeley.

Bill Byron, Banner spokesman, said he could not comment specifically on the proposed joint operating agreement between PVHS and UCH or what impact it might have on Banner facilities.

Byron said Banner currently has no plans to try to join with another health system in the Denver area or elsewhere in Colorado.

But he acknowledged that more unification of health-care systems is likely.

“With the background of health-care reform and with consolidation strategy, how do we increase the level of quality and the level of efficiency?” he said. “Clearly, consolidation is a likely occurrence we’ll see more of in the coming years. That’s certainly something that’s happening in our industry.”

Still more to do

In coming months, both PVHS and UCH will be doing due diligence to make sure everything is as it seems as well as seating an 11-member joint board of directors.

Schroffel said the unification may also need to have state and other levels of regulatory review, but added, “That, I don’t have any concern about.”

Final approval of the joint operating agreement is expected in October, with the new system officially beginning in January.

Issues yet to be resolved include choosing a name for the new organization and selection of a CEO. Both Schroffel and Stacey said they will leave the CEO decision up to the new board of directors.

“That’s a question for the board,” Stacey said. “It’s way too soon to talk about that. It could be me or Bruce or the man in the moon.”

Both CEOs say they are looking forward to making the new organization a reality.

“There’s great chemistry between us,´ said Schroffel. “The response I’ve heard has been overwhelmingly positive. Everybody sees a lot of synergy.”

Schroffel acknowledges the combining of two huge organizations has its challenges and there will likely be bumps along the road.

“But I think if you do things slowly and thoughtfully, it will work well,” he said. “It doesn’t mean it will be easy. Only time will tell, but I think the chemistry is there and we have a partner that shares the values we do and I think we’ll work extraordinarily well together.”

Summer said he’s willing to bet on it.

“My money is on this being successful, and the citizens of both areas will be the beneficiaries of this new model of health-care delivery,” he said.