The University of Pennsylvania Health System plans to extend its reach into New Jersey by acquiring Princeton HealthCare System, the two hospital groups said this week.
The University of Pennsylvania Health System is the parent organization of high-profile, historical facilities such as the Hospital of the University of Pennsylvania. The sprawling academic system based in Philadelphia has grown significantly over the past several years, from $3.4 billion of revenue in 2012 to $5.7 billion in fiscal 2016. It also has above-average operating margins that hover around 7% annually.
Princeton would become UPHS' first hospital outside of Pennsylvania. Princeton, based in Plainsboro, N.J., includes a 319-bed acute-care hospital and a 110-bed psychiatric facility. Many of its patients have private health insurance coverage, which pays higher reimbursement rates than Medicare and Medicaid. Roughly 30% of Princeton's gross patient revenue comes from Aetna and Blue Cross and Blue Shield.
Princeton broke even from operations in 2015 and had about $437 million in revenue. Terms of the potential deal were not disclosed. Typical industry price-to-revenue multiples for hospital transactions would place a purchase price around $350 million.
The two sides signed a letter of intent to explore a possible combination this past summer. Princeton ultimately went with UPHS after considering 17 other suitors.
For UPHS, Princeton becomes another community hospital in its academic hub-and-spoke system. Many academic medical centers have viewed acquiring local hospitals as a way to deal with healthcare reform and diversify their operations beyond their traditionally high-cost core.
“We are proud of this exciting opportunity to combine Princeton HealthCare's strong reputation for providing excellent care in the community with Penn Medicine's strengths as a national leader in complex and specialty care,” Ralph Muller, CEO of the University of Pennsylvania Health System, said in a news release.
The transaction requires state and federal approval.