Thomas Jefferson University signed on the dotted line to buy Fox Chase Cancer Center from Temple University a few weeks ago. But another piece of the vast network that Jefferson chief executive Stephen K. Klasko is trying to assemble has not yet fallen into place.
Jefferson’s acquisition of the Einstein Healthcare Network, first announced in March 2018, has been pending since September of that year, when they signed a definitive agreement. That is longer than it took from a so-called definitive agreement to completion for any Jefferson deal since 2015 — the start of a phase of rapid expansion for the nonprofit from three hospitals in Philadelphia to 14, stretching from Lansdale in Montgomery County to Washington Township in Gloucester County.
Jefferson officials said last month that the Federal Trade Commission and the Pennsylvania attorney general are still reviewing the merger, which may be getting heightened regulatory scrutiny because it will significantly increase Jefferson’s share of inpatients in neighborhoods served by Einstein Medical Center Philadelphia.
In a statement Jan. 3, Jefferson said: “Jefferson and Einstein are two academic medical centers committed to helping solve the fundamental problems of caring for the under-served in our community. This merger makes sense, given our 20-year academic partnership, and our belief that we can build a better future.”
In a 2018 interview, Klasko described Einstein, which has three hospitals with 965 licensed beds, as the “missing piece” in what he described as a bid to create a health system with “the kind of scale where we could become the place that starts to get care out to where people are.”
The acquisition of the financially struggling Einstein would fill a geographic gap between Abington Hospital and three former Aria hospitals spread from Frankford in lower Northeast Philadelphia up to Langhorne in Bucks County. More important, it will help prepare Jefferson for a time, anticipated by Klasko and others, when hospital systems will be required to bear financial risk for the health of the populations they serve. In such a model, serving a larger population dilutes the risk for hospital chains such as Jefferson.
‘Concentrated market power’
A spokesperson for the attorney general confirmed that the office is looking at the proposed merger but said she could not comment on the status. An FTC spokesperson said the agency does not comment on mergers. One of the federal agency’s tasks is to preserve competition.
That the deal is getting a long regulatory review does not surprise health-care consultant Dan Grauman.
By combining Einstein’s strong presence in North Philadelphia with the former Aria hospitals in Northeast Philadelphia and lower Bucks County, as well as Abington Hospital in Montgomery County, “you begin to, I am sure, push up against the limits in terms of concentrated market power,” said Grauman, chief executive of Veralon, a Philadelphia firm that advises hospitals and health-care systems.
“Honestly, I always thought it was going to be a challenge,” Grauman said of the prospects of getting regulatory approval for Jefferson’s acquisition of Einstein, which also owns MossRehab in Elkins Park, the region’s largest rehabilitation hospital.
The FTC measures health-care concentration in specific geographic areas, with the goal of preventing unfairly raising prices after eliminating competition. The trick is in defining the market. “The smaller the market, the quicker you’re going to run up against a problem,” Grauman said.
How Jefferson defined its relevant market to the FTC is not public information.
In a June bond-offering statement, however, Jefferson said its primary service area covers Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties in Pennsylvania and significant portions of Burlington, Camden, Gloucester, and Salem Counties in New Jersey.
The bond statement said Jefferson had 19.3% of discharges of patients from that nine-county area in 2017. Adding Einstein in that year would have increased Jefferson’s share to 25.3%.
But narrowing the relevant market to the core service areas of Abington Hospital, Einstein Medical Center Philadelphia, and the three-hospital Jefferson Health-Northeast creates a far different picture.
The core markets for those five hospitals include 68 zip codes that the hospitals identified in their most recent assessments of community health needs as core markets. That combined region stretches from Harleysville down to Philadelphia’s Fishtown neighborhood and back up through Northeast Philadelphia to Yardley and Newtown in central Bucks County.
The Einstein deal would increase Jefferson’s market share of hospital inpatients there from 33% to 47%, an Inquirer analysis of state data on hospital inpatient discharges in 2018 found. The region accounts for at least 70% of each of the hospitals’ inpatients and is home to an estimated 1.7 million people, according to the hospitals and census data.
A bigger jump in market share would happen in the neighborhoods surrounding Einstein Medical Center Philadelphia, which is in Logan and draws large numbers of patients from Olney, Germantown, and West Oak Lane.
Jefferson already has a 20% market share there, the state data show. Add that to Einstein’s 28% and the combined entities would have a share of 48%, far more than Temple University Health System, which in 2018 had the second-largest share: 24%.
In the core areas served by Einstein Medical Center Montgomery, in East Norriton, and Abington Lansdale Hospital, Einstein had 26% of inpatients and Jefferson had 25% of inpatients in 2018. The area is home to about 350,000 people.
An increasing portion of health-care services is shifting to outpatient settings, but data to measure market share in that growing arena were not available.
Some Philadelphia-area health-care professionals have speculated that regulators may be concerned about the consolidation of Einstein’s MossRehab and Center City’s Magee Rehabilitation Hospital (which Jefferson acquired in January 2018) under one corporate parent.
If Jefferson’s acquisition of Einstein goes through, Jefferson would control 51% of the inpatient rehabilitation beds in Southeastern Pennsylvania. The other players are St. Mary Rehabilitation Hospital in Langhorne (50 beds), Bryn Mawr Rehab Hospital in Malvern (148 beds), and Good Shepherd Penn Partners in Philadelphia (58 beds).
“I would be surprised if that were something that trips them up,” Grauman said, “because inpatient rehabilitation is so inconsequential to the overall health-care spend.”
Although it is impossible to know the sticking point in the regulatory review of the Einstein acquisition, it’s clear that the deal is taking far longer to close than Jefferson’s previous health-care acquisitions.
The Einstein deal has been pending for well over 470 days. That’s longer than the 402 days it took Jefferson to get its acquisition of Kennedy Health System through the regulatory review process. New Jersey requires some acquisitions to undergo a review under the Community Health Care Assets Protection Act.
Jefferson officials are hanging in there.
“We have not received an adverse decision by the FTC. They are thoroughly reviewing the information submitted on behalf of both organizations, and our leadership is working collaboratively with the FTC and the Pennsylvania Attorney General through their process. We appreciate the comprehensive review and anticipate a decision in the near future,” Jefferson officials said in a Dec. 17 email.
What the FTC is looking at is not public. Generally, the FTC only shows its hand when it sues to block a deal, as it did in 2015 in Central Pennsylvania, when Penn State Hershey Medical Center tried to acquire Pinnacle Health System. Penn State gave up the next year, and not long after, University of Pittsburgh Medical Center swept in to acquire Pinnacle.
What happens to Einstein if the Jefferson deal doesn’t get across the finish line?
Einstein said the statement above from Jefferson represented both would-be merger partners.
“I don’t see it going anywhere other than where they were headed before Jefferson, which is some kind of arrangement with Temple,” said Grauman, the heath-care consultant.
“Or it gets broken up — the regional medical center, a nice community hospital — would go one way,” he said, “and maybe Einstein and Temple get put together and rationalized and economized and made as efficient as possible.”