Pennsylvania hospital systems agree to merge

Excela Health and Butler Health System reached an agreement to create an organization with five hospitals. They hope to gain regulatory approval by the year’s end.

Two Pennsylvania health systems say they have reached an agreement to merge and form a new organization with five hospitals and more than $1 billion in revenue.

Excela Health and Butler Health System, two systems in western Pennsylvania, announced Nov. 18 that they have entered into “a definitive agreement” to join forces and create a new system.

The systems said they are in the process of obtaining approvals from federal and state regulators, which they anticipated would happen by the end of the year. Excela and Butler said in June that they had signed a letter of intent to combine the organizations.

Excela operates three hospitals: Excela Westmoreland Hospital, Excela Latrobe Hospital and Excela Frick Hospital. Butler runs two hospitals: Butler Memorial Hospital and Clarion Hospital.

“This is a very important development for our respective organizations and the proposed new system,” John Sphon, Excela Health CEO, said in a statement. “We are now one step closer in realizing a goal that will have a dramatic and positive impact on healthcare for those we serve.”

Similarly, Ken DeFurio, president & CEO of Butler Health System, said in a statement that the agreement to merge “represents a major step forward in the process to redefine locally-controlled, community-based care.”

“Our commitment to our patients in providing high-quality, low-cost sophisticated care in our region will be the cornerstone of the new entity,” DeFurio said.

The new organization would employ about 7,300 people, including 1,000 physicians and practitioners, and serve a population of around 750,000 people. Much of the service area of the new organization includes the suburbs surrounding Pittsburgh.

While the systems have agreed to join forces, they have yet to announce a name for the new organization. A name will be announced at a later date, the systems said.

The systems compete in the western Pennsylvania market with UPMC and Allegheny Health Network.

Sphon told The Tribune-Review that he didn’t anticipate changes in staffing or insurance offerings. Patients will be able to continue to see their same primary care physicians and specialists. He said the merger will allow the systems to expand their offerings and reach.

“Both organizations provide some very high-quality care in their own right. As we combine, we will be able to enhance that,” Sphon told The Tribune-Review.

Paul Bacharach, the chairman of Excela’s board, and Tim Morgus, chairman of Butler’s board, issued a joint statement expressing their excitement for the planned merger.

“Our Boards approached the merger as an opportunity to affect real and meaningful change in the landscape of healthcare in western Pennsylvania. We are most excited regarding the possibilities that are now before us,” the chairmen said.

While the COVID-19 pandemic has generally slowed down hospital mergers and acquisitions, the pace of deal-making appears to be picking up a bit.

Just across the Pennsylvania state line, two West Virginia health systems completed a merger in September. The Charleston Area Medical Center and Mon Health have combined to form a new organization called Vandalia Health.

Essentia Health and the Marshfield Clinic Health System said last month that they have signed a memorandum of understanding to examine the possibility of creating a regional health system. If they go forward, the merged system would include 25 hospitals.

LCMC Health announced in October that it has struck a deal to purchase three hospitals in the New Orleans area from HCA Healthcare. Yale New Haven Health System said it has reached an agreement to buy two Connecticut health systems, including three hospitals, from Prospect Medical Holdings.

Industry analysts have said they expect to see more hospital mergers and acquisitions in the near future. Given the financial difficulties many hospitals are facing after more than two years of the pandemic, some health systems and providers may need to find partners to sustain operations, analysts said.

In addition, some health systems could also be looking to strike deals with other partners to supplement them in areas such as telehealth or outpatient services, industry analysts say.