Our Take: Jefferson Health to merge with Lehigh Valley Health Network, creating 30-hospital system
Editor’s note: With the upcoming holiday, Our Take will return on June 3.
Philadelphia-based Jefferson Health and Lehigh Valley Health Network (LVHN), a Magnet-designated health system based in Allentown, Pa., have signed a definitive agreement to merge, creating an integrated care delivery system with an estimated $14 billion in annual revenue.
The health systems signed a nonbinding letter of intent in December to combine.
If the proposed merger receives regulatory approval and is finalized, the resulting nonprofit entity will be encompassing 30 hospitals, more than 700 sites of care, a not-for-profit health plan, and more than 65,000 employees, according to the announcement.
“Through our integrated operating model, the combined organization will provide the communities we serve with access to the highest quality care, the benefits of continuous research and innovation, a network of specialists, clinical trials, and so much more, while also building an organization that prioritizes health through value-based care,” said Dr. Joseph Cacchione, Jefferson Health’s CEO. “This combination promotes access, choice, innovation, opportunity, increased equity, and stability—for patients, physicians, faculty, staff, students and health plan members, and our communities at-large.”
Jefferson Health is the largest provider in the Philadelphia area. The system comprises 17 hospitals (including its flagship hospital, Thomas Jefferson University Hospital), more than 160 outpatient and urgent care locations, and Jefferson Health Plans, a not-for-profit managed health care organization that offers Medicare Advantage, Medicaid, Children’s Health Insurance Program, and individual and family plans.
“We could not be more excited about what lies ahead for communities across eastern Pennsylvania and southern New Jersey,” said Dr. Brian Nester, CEO of Lehigh Valley Health Network. “As our collective teams worked these past months, we confirmed what we had believed to be true when we signed our initial letter of intent—Jefferson is the ideal partner for Lehigh Valley Health Network, our teams, and our patients. We look forward to continuing the important work of improving the health and well-being of our communities together.”
In addition to more than a dozen hospital campuses, LVHN has a network of 29 health centers, over 300 primary and specialty care practices, 21 ExpressCARE locations, and a regional medical school campus. The health system is a certified Comprehensive Stroke Center and a leading provider of advanced robotic surgery, the announcement noted.
Dr. Cacchione, who previously was with Ascension and came on board as Jefferson’s CEO in September 2022, will serve as CEO of the combined health system. Dr. Nester will serve as executive vice president and chief operating officer of the merged system and as president of the legacy LVHN.
Financial details of the agreement were not disclosed. The health systems anticipate finalizing the transaction this summer if all closing conditions are met.
Our Take: Jefferson Health is the larger of the two health systems, achieving its present size through a series of acquisitions in the last decade, including mergers with Abington Health in 2015 and Aria Health in 2016.
Jefferson’s most recent merger was with Einstein Healthcare Network, a deal that was announced in 2018 but not finalized until 2021 due to antitrust scrutiny and legal challenges. Both the Federal Trade Commission and Pennsylvania’s attorney general tried to block the merger, but after an appellate court ruled against the FTC, the state’s AG dropped his challenge.
Jefferson also gained full ownership of Health Partners Plans (HPP) in 2021 (and subsequently changed the name to Jefferson Health Plans), acquiring the remaining 50% stake from Temple University Health System for $305 million. Jefferson gained partial ownership of the managed care plan through its mergers with Aria Health and Einstein Healthcare Network. Jefferson said the acquisition of HPP would better position the health system “to advance its value-based care model while reducing [the] cost of health care services, particularly to underserved patients and families.”
Citing Dr. Cacchione’s presentation at the J.P. Morgan Health Conference at the start of this year, Fierce Healthcare reported that the Jefferson Health-LVHN merger plans sprang from initial discussions between the two nonprofits to expand Jefferson Health Plans into the Lehigh Valley area. Jefferson wants to double its insurance unit’s revenue and covered lives in the next five years. The merger could allow Jefferson to accomplish those goals “within 18 to 24 months,” Dr. Cacchione said at the conference. As of 2023, according to the presentation, the insurance unit contributed 22% of Jefferson Health’s revenue mix.
Both Jefferson Health and LVHN have recently undertaken reorganization efforts.
In January 2023, Jefferson announced plans to restructure into three regional divisions (down from five) in a move to streamline its processes and “optimize” the health system, according to Dr. Cacchione. The restructuring involved an undisclosed number of job cuts; according to Fierce Healthcare, Dr. Cacchione confirmed in July a workforce reduction of about 1%, or an estimated 400 (mostly administrative and corporate) employees.
Last October, LVHN said it was eliminating approximately 240 positions, none of which were bedside clinical jobs, as part of its restructuring initiative.
For the fiscal year ending June 30, 2023, Jefferson Health reported an operating loss of $78.5 million and revenue of $9.7 billion. In February, The Philadelphia Business Journal reported that although Jefferson was still operating in the red, the health system had cut its losses by 40%.
LVHN reported operating income of $10.4 million and revenue of $4.1 billion for its fiscal year, which also ended June 30, 2023.
Though it’s still early days, we haven’t seen much in the way of industry analysts’ prognostications for the proposed merger. Given the health systems’ expectations for closing the deal in the next few months, it seems they don’t expect much opposition.
Health Care Rounds #167: Why Accountable Care Models Are So Important, with Bill Lane
Having equal access to quality health care across the United States shouldn’t be a privilege, but a reality. Yet, seniors battling multiple chronic conditions often face disparities. The challenges are significant, from struggling to reach appointments to affording basic needs. Enter Accountable Care Organizations: Are they the answer to improving coordinated care? Today, Bill Lane, VP of Network Development for ilumed, joins John to explore how ACOs are transforming health care delivery. Listen here or wherever you get your podcasts. Now on YouTube.
What else you need to know
Kaiser Permanente reported a profit of $7.4 billion for the first quarter, which included a one-time net asset gain of $4.6 billion associated with Risant Health’s acquisition of Geisinger at the end of the quarter. The Oakland, Calif.-based organization reported an operating margin of 3.4% but cautioned that “[h]istorically, the first-quarter operating margin is strongest … due to the timing of the open enrollment cycle.” Kaiser Permanente explained that its expenses tend to increase throughout the year, while revenue “stays relatively flat” after the first quarter. Compared with the first quarter of 2023, the organization’s operating income more than quadrupled, increasing from $233 million to $935 million. Still, Kaiser Permanente said its operating income was below historical trends for the first quarter before the pandemic. The organization has been laying off workers — primarily employees in IT and marketing — since last fall to reduce costs. The system is also trying to sell up to $3.5 billion of its private investment holdings, The Wall Street Journal reported, citing sources “involved in secondary deals,” and may attempt to sell more later this year.
In separate news, Kaiser Permanente has decided not to proceed with plans it announced in 2020 to build a nine-story, 240,000-square-foot medical facility in Seattle that would have cost an estimated $500 million. A spokesperson told Becker’s Hospital Review that the health system paid about $38 million for the 1.6-acre parcel of land where the facility was to be built. The original plan was for the facility to open this year, but the pandemic delayed construction. Kaiser Permanente now intends to sell the land, according to Becker’s.
Within a week of the May 8 ransomware attack on Ascension, plaintiffs filed two separate, proposed class-action lawsuits against the St. Louis, Ky.-based health system — one in Illinois and the other in Texas. The plaintiffs allege that Ascension was negligent in its responsibility to properly secure their protected health information and personally identifiable information. The investigation into the incident is ongoing, and Ascension has not said whether any patient data was compromised in the attack by the cyber criminal group Black Basta. The nonprofit health system operates 140 hospitals and 40 senior living facilities across 19 states. In an update posted on Ascension’s website on Wednesday afternoon, the health system said it is making progress toward restoration and recovery but was unable to provide a timeline as to when normal operations would resume.
Boehringer Ingelheim is partnering with Cigna subsidiary Quallent Pharmaceuticals, a distributor of private-label pharmaceuticals, to increase availability of Boehringer’s adalimumab-adbm, a biosimilar to AbbVie’s Humira (adalimumab). In October 2021, the FDA approved Boehringer’s Cyltezo (adalimumab-adbm) as the first interchangeable monoclonal antibody, making it the first biosimilar to Humira that is also interchangeable with Humira. Boehringer launched Cyltezo, its branded biosimilar, at a 5% price discount to Humira, as well as an unbranded version at an 81% price discount. Pharmacy benefit managers kept Humira on formulary, though, and Cyltezo failed to gain traction, causing Boehringer to seek other ways of marketing its biologic. The German drugmaker will continue to commercialize both Cyltezo and the company’s unbranded version while also manufacturing adalimumab-adbm for Quallent. Boehringer noted that Quallent will offer both high concentration (40 mg/0.4 mL) and low-concentration (40 mg/0.8 mL) citrate-free formulations of adalimumab-adbm as a pre-filled syringe or pen.
Executive Moves
Dr. Rod Hochman, Providence’s CEO and president, will be retiring at the end of the year. He has been in health care for 45 years and with “the Providence family of organizations” for 17 years, the Renton, Wash.-based organization stated in a blog post. Dr. Hochman will transition to the role of CEO emeritus on Jan. 1, 2025. The board of directors at Providence St. Joseph Health has initiated the process of selecting his successor.
Bruce Broussard will step down from his role as Humana’s CEO on July 1, the company announced Monday. Humana disclosed Broussard’s plans to retirement last October and hired his successor, Jim Rechtin, in January; Rechtin has been serving as president and chief operating officer. While Broussard will also resign from Humana’s board of directors, he will continue to serve as an adviser to the Louisville, Ky.-based health insurer through 2026. Rechtin was CEO of Envision Healthcare before joining Humana. Prior to that, he was president of UnitedHealth Group’s OptumCare.
What we’re reading
Master data management: The key to getting more from your data. McKinsey & Company, 5.15.24
Keep Your Eyes on the Prize — Focusing on Health Care Equity. NEJM, 5.11.24
Prices Paid to Hospitals by Private Health Plans. RAND, 5.13.24
