Jefferson Health and Lehigh Valley Health Network will soon take the next steps toward the formation of a $15 billion nonprofit health system.
Philadelphia-based Jefferson and Lehigh in December signed a non-binding letter of intent under which Jefferson would merge with Lehigh. The organizations plan to sign a definitive agreement this month, Jefferson CEO Dr. Joseph Cacchione said.
Related: Jefferson, Lehigh Valley to merge in 2024
In an interview, Cacchione said its planned deal with Allentown, Pennsylvania-based Lehigh could boost Jefferson's health plan expansion efforts, as well as cost-saving measures. He also said the health plan managed to avoid many issues tied to the Feb. 21 Change Healthcare outage. The interview has been edited for length and clarity.
What’s the status of the Lehigh Valley proposal?
We had a conversation last summer and talked about a joint venture, and they asked about a full integration. It took off from there. We'll probably end up with a definitive agreement in April and probably close in July. We still have to jump through some hoops for the [Pennsylvania] attorney general, but from the Federal Trade Commission standpoint, they’ve signed off.
What’s the strategy for the combined health system if a deal closes?
We're very hospital heavy right now. I don't anticipate us closing places, but I think we'll be looking to optimize the footprint in terms of maybe not competing with one another so much. We'll have a few hubs closer to Philly, and the Cedar Crest campus at Lehigh will be the hub there.
Lehigh has always had great clinical programs. I think we'll start to harmonize some of those clinical programs across the system. We think service lines are a good way to knit the system together. It will take time to do that.
The areas that we see going first are back-office overhead — supply chain, finance, human resources, legal. We'll also start to look at where's the high-value, low-hanging fruit — supply chain, pharmacy. All that needs to come under one corporate entity. We think there are $100 million to $200 million of cost synergies over the next five years. We also think that expanding our health plan in the Lehigh Valley is going to be important.
How are you planning to grow Jefferson Health Plans?
We are mainly a government plan. This is the first year we enrolled 10,000 people in Philadelphia in [Affordable Care Act] plans. We also have about 329,000 Medicaid,15,000 Children's Health Insurance Program and 14,000 Medicare Advantage members. Using the Lehigh Valley brand can help us grow our health plan footprint, particularly among government-related insurance entities. We think that’s part of our mission of reaching into communities.
The area between Lehigh Valley and Jefferson’s footprint is ripe for us to go in there in a synergistic way. This will be a true operating company. Lehigh will be our north region, Philly will be our south region. The two will come together in areas of Montgomery County and Bucks County.
How is Jefferson trying to optimize its service offerings as it grows?
We have plenty of places for somebody to go get open-heart surgery or for a critically ill patient to go to one of our ICUs. We don't need ICUs five blocks from one another. We had a small hospital in Elkins Park. After working with community leaders, pastors and politicians, we closed that as an acute-care facility and made it into all rehabilitation. We've moved our rehab beds out of Abington and opened capacity there because they were busting at the seams. The success of that [Elkins Park] hospital is now far greater than it was as a middle-of-the road community hospital, and we did not lose a job out of that.
How do you plan to tackle health equity after the deal closes?
I've told Gov. Josh Shapiro (D) we're going to stay in rural health. We’re worried about rural health in Pennsylvania and we're not going to walk away from those communities. Lehigh has made commitments too. And we're not going to walk away from our urban footprint in Philadelphia. We’re not going to walk away from Kensington, which is one of the worst opioid-addicted communities in the country. We're working with the city and the state officials on how we can help. We're repurposing some of Frankfurt Hospital, creating a homeless shelter there with the partnership of Project Home. We're also going to allow a Federally Qualified Health Center to be on that site.
How are you managing capacity constraints?
The biggest challenge for us, and many other systems across the country, is our emergency rooms are packed to the gills. Since Hahnemann [University Hospital] closed, we are the safety-net provider in Center City. We are the Level 1 trauma center. It is a challenge every day.
I worry about our ER staff burning out. Everybody that comes to emergency room now is really sick. We've almost doubled the number of people that get admitted to the emergency room. These people have longer lengths of stay and require more resources. We've got to optimize the capacity, but that's why it comes back to the ER is a bad place to get care.
If we can get people in [our clinics], particularly high-risk individuals, and keep them out of the emergency room and give them access to our clinics in a more effective way, it's a better method of care for them. If I was just a fee-for-service guy, I’d want as many ER visits as possible, heads in beds. It’s sick care. We’ve got to get away from being a hospital system and truly be a health system.
How did the Change outage impact Jefferson?
We had a little bit of a cash flow issue, but we did not have as big of an issue like some other health systems.
Our health plan had a bit of an issue. What we did for health systems that approached us, is we paid them what their normal weekly run rate was even though they didn't have claims, so they didn’t have a cash flow issue. We are going to reconcile that on the back end. The big one for us is pharmacy benefits and knowing who has got benefits or not. But we haven't had any material effect on our commercial or any of our other contracts. On our health plan side, we had a backup system. So we pivoted, but it took us two weeks to pivot to a second vendor. Fortunately, it has not been a significant event for us.
