Albert Einstein Healthcare Network last week agreed to join Jefferson Health System in a mergerlike arrangement that stops short of a full-asset merger but cedes substantial financial control to JHS.
Under a definitive agreement between the two Philadelphia-based systems, Albert Einstein will become the third founding member of JHS. Formed in 1996, JHS comprises Main Line Health Systems and Thomas Jefferson University Hospital.
Against the backdrop of Philadelphia's fiercely competitive and overbedded hospital market, the systems said they expect the deal to save money and enhance their competitiveness.
"It's not about survival; it's about thriving," said Martin Goldsmith, president and chief executive officer of Albert Einstein. "Size does count. In this market with two big insurers looking at carve-outs . . . it enhances our ability to compete."
According to the agreement, Albert Einstein's financial assets would be independent, and the system would have an equal voting share on the JHS governing board. Albert Einstein's name would be preserved but appear in combination with JHS'.
The marriage of the systems would give JHS a larger geographic and financial slice of the Philadelphia market. Combined, the three systems would control seven hospitals, all in the Philadelphia area.
"The Jefferson system at this point doesn't have a significant presence in Northern Philadelphia and neighboring suburbs," said Douglas Peters, president and CEO of JHS. The Einstein agreement "represents a significant step, and it really rounds out the system."
Besides coordinating member operations, JHS serves as a holding company that has the power to approve members' strategic plans, annual operating capital budgets and use of the debt markets.
The transaction is expected to close by July 1, pending regulatory clearance.
Einstein is a two-hospital, 1,289-bed system serving Northern Philadelphia and nearby suburban counties. It had net income of $10.7 million on $439 million in revenues for the fiscal year ended June 30, 1997. In the same period, five-hospital Jefferson Health System had net income of $32.8 million on revenues of $1 billion.
If the deal goes through, JHS would have 2,800 licensed beds and an active medical staff of 3,000.