Abington Health, Jefferson Health Plan '100% Equal' Merger

Completion of the deal would unify the two Philadelphia-area health systems, creating a system with a combined 18,000 employees under a shared governance model.

Abington Health and Jefferson Health System plan to merge into a single system that would be the second-largest in the Philadelphia area.

Senior leaders at both health systems made the joint announcement Tuesday afternoon after their respective boards approved a letter of intent to move toward a merger, which would create a system with a combined 18,000 employees, second only in size to Penn Medicine.

The deal is expected to be completed in the first half of 2015.

"These are two incredibly strong, clinically and financially, healthcare systems that are merging not because they need to, but because we believe that Philadelphia and the Abington community deserve the best," Stephen Klasko, MD, president/CEO of Jefferson said in an interview with HealthLeaders Media.

Laurence Merlis, president and CEO of Abington Health, said the two health systems are going forward with the aim of a full merger after weeks of close negotiations.

"We looked at this market and also looked at what was occurring across the country in healthcare," he said. "We recognized that we needed to look for other strong players in this market to be bold and innovative and begin to transform healthcare from volume and sickness to one based on value and wellness. We think creating a unique partnership in a fully merged organization allows us to provide value in a large metropolitan area."

Klasko says both systems see a full merger as the best relationship.

"The whole key in the new wave of things is going to be close enough to where you can create a model that helps you achieve the triple aim," he said. "The problem with some of the other relationships that have happened is they are almost countercultural to that. 'I am getting together with you, but I am still going to keep my board as my board and your board is your board so I can't reduce beds here and add beds there.'"

Merlis calls the model "unique in that it will be attractive to others who have the same philosophy and culture that we have seen between Abington and Jefferson."

A key component of the merger would be a shared governance model and a "hub-and-hub" structure for the new health system, as opposed to the more common hub-and-spoke models. Jefferson and Abington would have equal representation on a combined board, along with a few independent trustees.

A Tale of 2 Health Systems and Their Collaborative CEOs

No money would be exchanged to complete the merger.

"That is what is unique about this. It is a 100% equal merger," Klasko says. "Combined university and health system Jefferson is about $2.3 billion and Abington is about $800 million. We will be reporting to a single board that will govern these combined assets without dealing with any money transfers."

"There are only a few of health systems who've been able to maintain our ratings in this difficult time and are still profitable. The fact that our boards were wise enough to do this at a time when we are at our highest strength, both of us, as opposed to waiting until we had to do something, differentiates us from the way most boards have thought about it."

Jefferson, the larger of the two health systems, includes flagship Thomas Jefferson University Hospitals, the largest freestanding academic medical center in Philadelphia. Services are provided at five locations: Thomas Jefferson University Hospital and Jefferson Hospital for Neuroscience in Center City Philadelphia; Methodist Hospital in South Philadelphia; Jefferson at the Navy Yard; and Jefferson at Voorhees in South Jersey.

Abington Health, with more than 6,000 employees, includes flagship Abington Memorial Hospital, in Abington and Lansdale Hospital in Hatfield Township, and five outpatient facilities that combined serve more than 39,000 inpatients, 134,000 emergency patients and more than 653,000 outpatient visits each year, Abington said in a media release.

More than 1,400 physicians are on staff at both Abington Memorial Hospital and Lansdale Hospital. Abington Health Physicians is an employed network of primary care physicians and specialists, the health system said.

The two systems began intense negotiations in late September that culminated in the letter of intent approved by both boards and. They have 120 days to reach a definitive agreement and Merlis and Klasko say they expect it to finalize the merger early next year.

If the deal goes through, Klasko will lead the new health system. "We put this organization together with the best interests of the organization and our community. Dr. Klasko will be the president and CEO of this new enterprise," Merlis said. "He brings a tremendous vision and background to lead an organization that includes the university and two large health systems and other components."

Merlis says his own role in the new system has yet to be determined.

"We are looking at what the management structure should be for an organization with this complexity and we will figure that out as we move forward and I look forward to participating at that system level," he says.

Klasko says he's "excited about the leadership that Larry brings" into the merger.

"And not just Larry, but his senior management team. Larry and I and our teams will be sitting down over the next 30–45 days to look at what is now a very large system and finding the best roles for everybody."

The name of the merged system will include the names of Jefferson and Abington. "We are going to embark on a branding strategy and it will include the great brands of both," Merlis says. "Jefferson has a 109-year history as an innovative academic medical center and university and Abington Health Network has enjoyed the top brand in this area. Both of us want both of our names on this."

Wednesday's announcement marks Abington Health's second attempt in two years to find a partner. In 2012 the health system ended talks to merge with Holy Redeemer Health System when concerns were raised about Abington Memorial's plans to stop providing abortions.

In March, Jefferson Health parted ways with Main Line Health. Klasko said at the time: "We collectively realized that the existing corporate structure needs to be changed to allow us to be more entrepreneurial, nimble, and responsive. Jefferson looks forward to an increasingly vibrant clinical and academic relationship with Main Line Health."