Three months after announcing it would focus on UPMC as a potential partner, Altoona Regional Health System has signed a non-binding letter of intent to negotiate an affiliation with the Pittsburgh health care giant.
"Comprehensive and extensive talks" since November "about what an affiliation would and should look like" brought the parties to where they are now, according to Altoona Regional spokesman David Cuzzolina.
Altoona Regional and UPMC now will enter into due diligence, in which the parties will share "detailed operational information" on finances, board makeup, board minutes and contracts. Financial information involving the contracts will be redacted, according to Cuzzolina.
Based on UPMC's record affiliating with other hospitals, it might take half a year or more to reach a final agreement, according to Cuzzolina.
Cuzzolina declined to detail the kind of affiliation the letter of intent describes, saying that could change before a final agreement.
Altoona Regional, however, is seeking a partnership with the larger hospital that would mean financial support and expansion of local services, Cuzzolina said.
Such an affiliation could add those services through the larger hospital setting up medical personnel here, either full or part time, he said.
"The board only wants an agreement that will strengthen the hospital," Cuzzolina said.
Altoona Regional hopes that affiliating with UPMC can do for it what affiliating with the Pittsburgh health system did for Hamot hospital in Erie, Cuzzolina said.
Since UPMC acquired Hamot in 2011, the Erie hospital's employee roster has increased by 300 and its physician roster by 72, while inpatient admissions have risen 10 percent and emergency room visits have risen 17 percent, UPMC spokesman Paul Wood said in November.
Local residents have been leaving the Erie area for care 7 percent less frequently, while patients have coming in for care 8 percent more frequently, Wood said then.
UPMC has 55,000 employees, 20 hospitals, 400 doctors' offices and outpatient sites and a health insurance division, according to material provided by Altoona Regional previously.
At 380 beds, Altoona Regional would become the third largest UPMC affiliate in terms of bed size, after UPMC Presbyterian Shadyside, with 1,532 beds, and UPMC Mercy, with 487 beds, according to information supplied previously by UPMC spokesman Paul Wood.
U.S. News & World Report ranked UPMC No. 10 in the nation and No. 1 in Pennsylvania in 2012, according to an Altoona Regional news release Monday.
Altoona reported an operating margin of $6.4 million - 1.9 percent of revenue - from operations for the fiscal year ending June 30, 2012.
That is hardly adequate, based on a statement several years ago from Ron McConnell, now Altoona's chief operating officer, that a healthy hospital margin is 4 or 5 percent.
UPMC reported operating income of $351 million on $9.6 billion in revenues for fiscal 2012, according to a UPMC news release.
That is a margin of 3.6 percent.
A UPMC spokesman didn't return a call for comment Monday afternoon.
Failure to affiliate with a larger hospital could have unfortunate consequences, according to Cuzzolina.
"The reason our board is acting now is because we are right now in a position of strength," he said. "But everything points to bigger challenges down the road."
Those challenges over the next decade or two could put the hospital in such a weak position that instead of an affiliation leading to enhancement of services, it could lead to shrinking, according to Cuzzolina.
While Altoona has been working on affiliating with the larger UPMC, it has also been working on affiliating with the smaller Nason Hospital in Roaring Spring, to form a countywide health system.
Recently, Nason CEO Garret Hoover predicted that - contrary to initial indicators - the ARHS-UPMC affiliation would occur first.
Cuzzolina confirmed that likelihood Monday. The Mirror was unable to get in contact with Hoover on Monday.
Highmark, which has been feuding with UPMC in the courts in the Pittsburgh area over insurance and provider issues, "will take all actions within our power to assure that access continues for Highmark members in the Altoona market," according to Highmark spokesman Michael Weinstein Monday.
Mirror Staff Writer William Kibler is at 949-7038.