Excela Health’s proposed merger with Butler is likely a bulwark against competitors, experts say
The healthcare landscape in Westmoreland, Butler and Clarion counties may soon change following last week’s announcement that Excela Health and Butler Health System have signed an agreement of intent to merge.
It’s likely an effort by the two systems to better position themselves as players in a field dominated by Pittsburgh-based regional health providers, industry experts said.
For Excela and Butler, the decision to merge will not only position them better against larger systems, but also create financial stability, said Dr. Kevin Broom, associate professor of health policy and management at the health school. public at the University of Pittsburgh.
“It seems like it’s just a partnership to form a more protective defense against the larger systems and also to look for opportunities to maybe save some money,” Broom said.
The largest systems in the region include UPMC, which has 40 hospitals; Allegheny Health Network, with 14 hospitals; and West Virginia University Health System, with 16 hospitals, including one in Uniontown, Fayette County.
The proposed Excela-Butler merger would not put the yet-named system on the same playing field as UPMC and Highmark Health’s Allegheny Health Network, said John Driscoll, who served on Excela’s board of directors in early 2000s. But it could increase the reach of the new system while making it viable in suburban and rural areas of western Pennsylvania.
“It doesn’t look like they’re looking to be or ever be a primary competitor against UPMC or West Virginia or Highmark and Allegheny Health, but they’re trying to carve out a niche for themselves that allows them to have a longer term, a viable path to stay in the market as a key player,” Driscoll said.
When combined, the new system is expected to generate over $1 billion in revenue. It could employ 7,300 people and have more than 1,000 doctors and practitioners to serve about 750,000 people in Butler, Clarion and Westmoreland counties.
The new system would combine Excela’s three sites – Frick Hospital in Mt. Pleasant, Latrobe Hospital and flagship Westmoreland Hospital in Greensburg – with the two hospitals in the Butler Health system – Butler Memorial Hospital and the Clarion Hospital in Monroe Township, Clarion County.
Specific details were not released during Wednesday’s announcement. At the time, a prepared statement suggested that the combined organization “will exhibit the scale required to accelerate and increase its relevance…in the region’s highly competitive healthcare marketplace.”
Excela declined to comment further outside of the statement, noting that the intention to merge was only the first step in the process. Butler did not return a call seeking additional comment.
The most common mergers
Across the country, mergers and acquisitions have been commonplace for several years. According to a UCLA Anderson Review report, more than 2,500 US hospitals were involved in mergers or takeovers between 2000 and 2015. That number isn’t expected to slow down anytime soon.
In Pennsylvania, several hospital and health system mergers have taken place over the past two decades, said Liam Migdail, spokesperson for the Hospital and Healthsystem Association of Pennsylvania. Currently, 16% of Pennsylvania hospitals are independent. The remaining 84% are affiliated with 39 health systems.
According to Drew Simpson, a Duquesne history professor who researches the health care system, mergers have traditionally occurred to bring increased efficiency as well as other benefits such as the ability to purchase goods and services. at lower rates and create more revenue that could be used to upgrade facilities while attracting new talent.
Mergers have proven successful for financially challenged health systems.
When the initial merger between the hospitals that make up Excela Health was announced in 2003, two of them were struggling financially. In 2004, Westmoreland Regional and Frick hospitals lost $9 million in the previous fiscal year, while Latrobe lost $4 million, according to Tribune-Review records.
In the next fiscal year – after the merger – Excela posted a profit of $4.4 million.
“That may have been kind of a motivation for them to go ahead and try to formalize this deal,” Broom said of recent financial reports from Excela and Butler Health, “but he There are many organizations in the healthcare industry that have been dealing with this, much of it due to the pandemic.
He noted that throughout the pandemic, services such as elective surgeries that generated income have been closed as facilities shifted services to covid-related care. As the pandemic continued, health staff were impacted as people left or moved to different service areas, making it difficult to restart these interrupted services.
Denis Lukes — who retired Western Pennsylvania Board of Healtha regional trade association representing a continuum of health care providers — said mergers are often used to ensure the survival of hospitals.
In the case of Excela and Butler, Lukes said he believes the decision to merge largely stemmed from a desire to better position themselves in the community rather than financial need.
“I think it will strengthen both of these organizations on a combined basis, position them better with insurers,” Lukes said. “I think it will be important, and I suspect we will see more of these things over time. There are really fewer and fewer independent hospitals in all of Pennsylvania.
In many cases, the merger just makes sense, said Migdail, of the Hospitals and Health System Association.
“For hospitals to continue to meet the needs of their communities, they need financial stability,” Migdail said. “Training in or joining health systems allows hospitals to take advantage of economies of scale and ease the burden of systemic challenges and risks that lead to financial stress.”
Excela’s story in Westmoreland County began in 2003 when Westmoreland Health System – which operated Westmoreland Regional Hospital in Greensburg and Frick Hospital – took its first steps towards merging with the Latrobe area hospital.
At the time, officials said they intended to work together to create an integrated health care delivery system that would better meet community needs.
The process took more than a year and involved lengthy negotiations between the councils as well as the hiring of several consultants who assisted in the process.
Driscoll noted that he served on multiple boards as the mergers took place.
The merger, he said, better positioned the hospitals within the community.
“Obviously, in hindsight, things could have been done a little differently…but I think it was fine,” Driscoll said. “I think this Butler-Excela merger will turn out to be the same. They’re not exactly contiguous, but there are a lot of areas that will benefit in terms of cost, economic funding programs, etc., so I think it will (be) fine.
Excela is the county’s largest employer with about 4,800 workers, according to the Westmoreland County Industrial Development Corp. According to statistics from the state Department of Labor and Industry, more than 20,000 workers — or nearly 16 percent of the county’s workforce — hold health care and welfare jobs.
County Commissioner Doug Chew said he was excited about the merger.
“Excel was a good partner in our response to the pandemic, so having a more robust system will position us to meet the county’s health care needs even better,” he said. “Medical care is increasingly specialized, and a merger allows strategic use of a limited pool of providers.”
He added that the announcement is “great news” for the county and its ability to attract business.
“As we work to increase the population and employment opportunities in the county, we can cite this merger as an example of Excela’s commitment to organizing its operations efficiently to provide top-notch care to county residents. of Westmoreland,” Chew said.
Commissioner Sean Kertes said Excela officials informed county leaders of the merger on Wednesday, shortly before news of the deal became public.
“Excel is a great benefit to our community,” Kertes said. “This merger will contribute to its growth opportunity and ensure that Excela will be present in Westmoreland County for years to come.”
Since the intention to merge is only an initial step, specific details regarding the next steps have yet to be released.
According to Broom, when mergers are announced, leaders will typically have multiple discussions that revolve around the leadership mix and who will lead the new organization; types of services provided by each entity and which facilities will provide specific services; finance; the combination of their supply chains; and how medical records will be combined and how data will be shared across the entity.
“There are a lot of pieces that have to come into play when you have these two organizations merging into a new one,” Broom said.
Those discussions, along with regulatory and final board approvals, could take months.