As financial problems at Mercy Hospital persisted this spring, and the prospect of help from other Catholic health organizations dwindled, Sister Margaret Hannan focused on sparing her hospital the fate met by Pittsburgh's other faith-based medical center.

Darrell Sapp, Post-Gazette Sister Margaret Hannan: "I did not want to have another St. Francis [hospital]." Click photo for larger image. Related article: Social service providers hope 'Mercy care' continues

"I did not want to have another St. Francis," the president of the Pittsburgh Sisters of Mercy said yesterday, referring to the 2002 closure of St. Francis Medical Center in Lawrence-ville.

That's when Mercy reached out to officials at the University of Pittsburgh Medical Center, and invited chief executive officer Jeffrey Romoff and others to a meeting at the sisters' mother house in Oakland. The meeting -- which Sister Margaret stressed was initiated by Mercy -- kicked off a series of events culminating Wednesday in the announcement that Mercy would merge with the region's largest health system.

Mercy and UPMC officials provided yesterday the most detailed look thus far at the process that could give UPMC control of the county's last Catholic hospital. In comments to the Pittsburgh Post-Gazette editorial board, the officials also clarified why Mercy turned to UPMC rather than West Penn Allegheny Health System in its hour of need.

"West Penn came in and took -- or tried to take -- a whole bunch of our anesthesiologists," said John R. McGinley Jr., Mercy's board chairman, in reference to a recruiting effort that pulled four physicians from Mercy earlier this year. As a result, the hospital had to increase by 50 percent the compensation it provided to remaining anesthesia providers. "They're not real high on my poll of favorites," Mr. McGinley said of West Penn Allegheny.

The change came at the very moment Mercy could least afford the expense. Indeed, by late 2005 and early 2006, it was clear that Mercy had been struggling financially for years and needed financial help.

The hospital had lost an average of 1.63 cents for every dollar of revenue it took in during a three-year period from 2002 to 2004, during which time its affiliate in Westmoreland County -- Mercy Jeannette Hospital -- lost an average of 4.5 cents for every dollar of revenue. Pittsburgh Mercy Health System, the corporate parent of both hospitals, was in the process of closing the books on yet another year of losses in 2005.

What's more, the Mercy hospital in Pittsburgh was faced with a need for more than $60 million in capital investments.

The hospital turned for help to Highmark, the region's dominant health insurer. It soon became clear, however, that Mercy would not receive anything from Highmark approaching the magnitude of the controversial $125 million loan the insurer provided in 2000 to create the West Penn Allegheny Health System.

"They told us early on that wasn't in the cards for us," Mr. McGinley said.

With the help of a professional lobbyist, Mercy was able to secure what Mr. McGinley described as the best contract the hospital had received from Highmark in years. But the extra money through reimbursements for hospital services was "blown out of the water by the anesthesia issue," he said.

West Penn Allegheny and its anesthesiologists had been involved in a legal dispute in the previous year that resulted in doctors and nurse anesthetists leaving the health system early in 2005. As a result, the system had to recruit replacements, and wound up pulling providers from Mercy.

"A significant part of those increases we got [from Highmark] were wiped out" by the big jump in costs for anesthesiology, said Mr. McGinley.

Noting that West Penn Allegheny spokesman Tom Chakurda was quoted questioning the merger on grounds that it could create a monopoly, Mr. McGinley added: "It's a little irritating to me that they're the ones crying in the newspapers.

"UPMC could have sat and watched us struggle and wondered if that would be another spike in us,'' he said. But UPMC officials "called and helped us manage that anesthesia problem until it got straightened out.''

Mr. Chakurda responded yesterday by saying: "We find it hard to believe that the transition of four doctors to our organization would have had such a critical impact on the transition process of an important community asset such as Mercy."

Sister Margaret said she turned for help to Catholic health organizations, but none was able to provide a viable plan that would meet the hospital's capital needs. Next came the call to UPMC.

Every meeting began with a prayer. The parties talked about whether UPMC ownership would change Mercy's commitment to treating poor patients, and providing care in a way consistent with Catholic ethics.

In the end, Mercy officials were convinced that the merger wouldn't compromise the hospital's values.

"The validity of this ministry was reaffirmed," said the Rev. Ronald P. Lengwin, chief spokesman for the Catholic Diocese of Pittsburgh, which will work with UPMC to make sure the hospital is run in accordance with church teachings. "We've found a way to maintain a faith-based organization that has some very important contributions to make to this community."

Mercy and UPMC officials hope to conclude the deal by the end of the year. Among other details to be ironed out, the merger requires approval from Rome.

Regulators closer to home have already indicated they will look at the impact of a merger on competition in the local health care market.

The question of what impact the merger will have on health care costs is an important one, said Robert Cindrich, general counsel at UPMC. But it's one that ultimately will provide an endorsement for the merger, he said.

"Consolidation in markets will produce efficiencies; that's what we've proved at UPMC already," Mr. Cindrich said. "Our costs today are lower than they were seven years ago adjusted for inflation, about 18 percent lower."