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Harrisburg, Pennsylvania, Healthcare Market Overview: July 2000

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Management Summary Healthcare providers and payers in the Harrisburg region are suffering the combined effects of increased medical and drug costs, and reductions in Medicare and Medicaid reimbursements. As a result, local healthcare organizations are consolidating operations and shedding unprofitable lines of business. Harrisburg, Pennsylvania's state capital, is on the banks of the Susquehanna River in the south-central section of the state. The Harrisburg-Lebanon-Carlisle metropolitan statistical area (MSA) comprises Cumberland, Dauphin, Lebanon and Perry counties, and includes the towns of Carlisle, Hershey and Lebanon. The principal hospital organization is PinnacleHealth System, which owns all four hospitals in the city of Harrisburg. The main health plans are Keystone Health Plan Central, HealthGuard of Lancaster and Aetna U.S. Healthcare. The pressing issue facing hospitals in the Harrisburg region, and in the state as a whole, is controlling costs in the light of ongoing federal Medicare reimbursement reductions. Unless the federal government enacts legislation to roll back the Medicare reimbursement cuts mandated by the 1997 Balanced Budget Act, Pennsylvania's hospitals will suffer serious financial losses during the next few years. According to the Hospital and Healthsystem Association of Pennsylvania, reduced Medicare reimbursements to Pennsylvania's hospitals for 2000 exceed the total net income of the state's hospitals for 1999. Pennsylvania's hospitals must shoulder the additional burden of the state's low Medicaid reimbursement rate (77 percent of costs), which is among the lowest Medicaid reimbursement rates in the country. To remain solvent in the face of these financial pressures, PinnacleHealth System, the area's sole integrated delivery system (IDS) and the owner of all four hospitals in Harrisburg, is restructuring its entire organization to cut costs, consolidate duplicate services and improve efficiency and quality. Penn State...


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