Thomas Jefferson University, on the heels of completing its acquisition of Abington Health, has reached a preliminary deal to add Aria Health to its growing system, the two tax-exempt organizations said Tuesday.
Under Stephen Klasko, Jefferson's chief executive since September 2013, the Center City health system with a medical school at its core has engaged in a whirl of activity that is remaking the Philadelphia health-care landscape, starting with its split from longtime partner in the old Jefferson Health System, Main Line Health.
"We think that health care is going to become less fragmented. We think that there might be two or three systems, certainly in Philadelphia, if not in Pennsylvania," Klasko said. "Just being the high-cost, high-quality academic medical center in Center City Philadelphia was not the way for us to be one of them."
"It's about the community. It's about the patient. It's about the physician," he told Aria staff Tuesday. "It's not about the ego."
Experts say that the current hospital merger wave is driven by the notion that systems of the future will get a limited amount of money to treat large groups of patients. They want their networks of doctors, hospitals, and outpatient facilities to be accessible to more people, to spread the risk.
Academic medical centers such as Penn and Jefferson also want to cast a wider net for patients needing the complicated and expensive surgeries and other high-end treatments.
The planned Jefferson-Aria deal would create the biggest health system in the five-county Southeastern Pennsylvania region, by number of licensed beds, state data show.
Including Aria, Jefferson would have 2,217 licensed beds, compared with 1,853 for the University of Pennsylvania Health System.
Penn remains bigger, counting the 630 beds at Lancaster General Health, in Lancaster, which Penn acquired in August.
On a combined basis, Jefferson, including Abington, and Aria had $3.55 billion in revenue in the year ended June 30, compared with $4.33 billion for Penn.
With Aria off the table, merger talks could intensify for remaining systems. Crozer-Keystone Health System in Delaware County is the only one that has publicly sought a partner, but Temple University Health System CEO Larry Kaiser has made no secret of his desire to do a deal since he started there three years ago.
Though Aria is coming off two years of operating losses, "we did not do this based on a financial reason," said Aria's chief executive, Kathleen Kinslow.
She said Aria, which has hospitals in Frankford, Torresdale, and Langhorne, is on track for an operating profit of 2 percent to 3 percent in the current fiscal year.
Aria, part of the former Jefferson Health System until 2008, has the advantage of a very small debt load of about $60 million.
The letter-of-intent announced Tuesday is the first formal step toward a definitive merger agreement. It's rare for a deal not to be completed once this stage is reached.
The Jefferson-Abington deal was unusual in that the combined board had equal representation from each group, plus Klasko and two outsiders, who have been selected.
If the Aria deal is completed next spring, as anticipated, the board will have nine representatives from Jefferson, nine from Abington, seven from Aria, plus two independents and Klasko, officials said.
The plan, Klasko said, is for board seats to lose their link to any legacy organization in a few years.
There is precedent for Klasko's board strategy, said Alan Zuckerman, director and chairman of Veralon Partners, a health-care consulting firm based in Philadelphia.
Lahey Health System Inc., a five-hospital system based outside Boston, gave merger partners equal board representation, and "it's worked out very well," Zuckerman said.
He said Klasko is smart: "He is not above taking what someone else is doing and using it to his purposes."