It is the first such collaboration in Georgia, the two nonprofit health systems said, but both insist it is not a merger.
“We don’t want to close out any options, but a merger is definitely not on the table now and has not been a part of the discussion,” said Reynold J. Jennings, president and CEO of WellStar.
Patrick M. Battey, M.D., chairman of Piedmont’s board of directors and interim CEO of Piedmont, said, “Our underlying goal here is for innovative delivery systems of care that seem to work better on a larger scale. … We’re not undertaking this to merge systems so we can look for a larger workforce, or do layoffs, or anything like that.”
The collaboration won’t force patients to see different doctors, Battey said.
“Our patients are bound to benefit,” Battey said. “That’s certainly our intent. There’ll be no restriction of choice as to who people go to. Their entrance into the health care system would be not be impacted and if anything, facilitated.”
WellStar and Piedmont are each putting $100,000 into startup costs, and then will each put in “dues” of $60,000 per year for two years, Jennings said.
Frank Lordeman, who was chief operating officer of the Cleveland Clinic for 15 years and now has a health care consulting firm that earlier created a similar collaborative between three Ohio health systems, is under contract to serve as executive director of the collaborative for two years. His firm will be paid $5,400 per month.
The collaborative will be overseen by an eight-member board that should have its first meeting by the end of this year, Jennings said. Other health systems could ultimately join the collaborative, they said.
Local economists and analysts reacted to the move as a sign of the times under the federal health care law passed in 2010 and firmed up last week with the re-election of President Barack Obama, with some suggesting the two could ultimately try to negotiate contracts with insurers or begin their own health insurance offerings.
“Historically, we’re all looking for procedures and the next patient. That’s the old way of doing things,” Jennings said. “Government and big business is taking note of the fact that inflation of health care is running two percentage points higher than general inflation. That is billions of dollars, and embedded in that are individuals who have three or more chronic illnesses. If you look at them one-dimensionally, they end up coming back to your hospital numerous times per year. There is more to be gained by systems working together to see how we can keep that very sick group of patients well, and maybe even educate them on bad habits they may have, to improve things.”
Said Battey: “We’ve been on this track of health care financing that has rewarded volume rather value. ... We are now being charged, and especially under the federal health care law, with devising new ways to take care of our population’s health.”
Roger Tutterow, Ph.D., a professor of economics at Mercer University, said the partnership seems like a natural fit for WellStar and Piedmont because of similar cultures.
“Both systems have been innovative and tried to develop physician networks where their patients had access to an entire network of physicians under one common umbrella,” Tutterow said. “Going forward, there may be advantages to larger networks and potentially, networks that provide services and approximate insurance-type functions.
“Health care systems are trying to figure out how the Affordable Care Act actually will play out,” Tutterow said. “I think they’re trying to position themselves to have flexibility to be the dominate player in the northern part of Georgia.”
Govind Hariharan, Ph.D., a professor of economics at Kennesaw State University, said he believes this collaboration is a result of earlier efforts in states like Massachusetts to eliminate disparities in health care services. Hariharan was a member of a now-defunct WellStar advisory board that looked at how health care can be carried out with better outcomes and lower costs.
“There is such a big disparity still in how a particular procedure is performed in one state as opposed to another, and even from one hospital to another,” he said. “What they have tried to do for instance in Massachusetts was create a set of standards, and they had all of the health care systems signing onto that. ... That was a very good success story in terms of collaboration, and it also helped bring down costs.”
David Bottoms, a senior vice president of the Bottoms Group, a benefits-consulting firm in Marietta, called the announcement “a pretty big development.”
“There are potential abilities for them to better negotiate with insurance carriers for more favorable reimbursement rates,” Bottoms said. “That’s going to be really interesting to see if they come together to try to negotiate (insurance) contracts as one. It’ll be harder for a Blue Cross or a Kaiser to negotiate the kind of arrangement they want with the combined WellStar-Piedmont than it would with just one or the other.”
WellStar’s Jennings said that would require a merger.
“You’d have to do a merger to negotiate insurance contracts,” Jennings said.
As for the two systems ultimately starting their own insurance provider, Piedmont’s Battey said maybe.
“It’s something we certainly would keep our options open for doing, if we could do it under the right circumstances,” Battey said.
Hariharan, of Kennesaw State, also believe this partnership could help make Atlanta a hub for global health care.
“We have tremendous resources, but we haven’t been able to capitalize on that,” Hariharan said. “It’s easy to get to Atlanta from around the world, and this becomes a dimension in which we can establish ourselves.
“People will get concerned about whether this will reduce competition, but my sense is that the way these are structured, it does not really have any impact on that element. And the more hospitals that share this, in terms of sharing knowledge, the better it will be for the state of Georgia as well as the world,” he said.
How the entity will affect Northside Hospital is also a question, said Bottoms, the benefits consultant.
“I suspect Northside will be strongly compelled to try to join this,” Bottoms said. “It would probably be difficult for them to start their own.”
WellStar and Piedmont each operate five hospitals.
For fiscal 2012, WellStar has reported total revenues of $1.5 billion and expenses of $1.4 billion, leaving savings for reinvestment of $86 million. In fiscal 2011, WellStar reported revenues of $1.4 billion and expenses of $1.3 billion, but also investment income of $83 million that helped create a bottom line of $178 million.