Why hospital consolidation is booming in Pennsylvania

Hospital consolidation continues to reshape the nation's healthcare landscape, with mergers and acquisitions becoming a dominant strategy for health systems seeking financial stability, operational efficiencies and expanded patient access. 

Pennsylvania has emerged as a key battleground in this national trend, as health systems across the state pursue strategic alignments to strengthen their market positions. Over the past year, the state has seen a substantial wave of mergers, acquisitions and hospital affiliations — some driven by strategic expansion, others by financial survival.

From powerhouse systems like UPMC and Jefferson Health expanding their reach to smaller, community hospitals seeking refuge in larger networks, the consolidation boom signals a fundamental shift in Pennsylvania's healthcare landscape. 

But what's fueling this rapid transformation? 

And what does it mean for competition, patient access and the future of independent hospitals?

Six hospital and health system leaders shared their perspectives with Becker's on the factors driving Pennsylvania's hospital consolidation surge and what the future holds as the trend continues.

Editor's note: Responses were lightly edited for length and clarity.

Question: Why is hospital consolidation booming in Pennsylvania? How do you predict the state's hospital landscape will evolve over the next 5 years?

Joseph Cacchione, MD, CEO, Jefferson Health: As the leader of one of the nation's leading nonprofit academic health systems, which includes a health insurance plan and national doctoral research university, Jefferson's mission is to improve the lives of those we are privileged to serve. For decades, we've been dedicated to pioneering new treatments and procedures while advancing population health to keep our neighbors healthy and out of the hospital. These efforts often involve complex, multidisciplinary approaches to be effective. Sometimes, merging hospitals into larger systems allows us to add new resources, achieve economies of scale and enhance operations — helping us deliver better care at lower costs for our communities.

However, mergers aren't always about expanding access to care; in some cases, they're a last resort to keep hospital doors open. Sadly, we've witnessed closures that leave communities with limited or no access to lifesaving care. In these instances, nonprofit systems are left to step in and ensure access to care for all.  

Nonprofit health systems exist to fill these gaps. We have no shareholders and no dividends — our communities are our shareholders, and our dividends are improved patient outcomes. While we continue to advocate for better reimbursement rates from Medicaid and Medicare, there's still more work to do. Safety-net health systems, already stretched to their financial limits after the pandemic, are struggling to reinvest in their people, technology, patient safety and aging infrastructure. Fair reimbursement from private payers — who report record profits year after year — is critical to sustaining this mission.

Caring for our most vulnerable community members is among the most rewarding work we do. Consolidation can help us achieve this mission, but now is the time for lawmakers to take action and ensure fair reimbursements for the care we provide.

Bruce Meyer, MD, Executive Vice President, Market President for Western Pennsylvania & West Virginia, Highmark Health (Pittsburgh): There are multiple, significant factors. With the increasing shift of patients into government-sponsored insurance — such as Medicare Advantage, Medicaid and ACA marketplace plans — there are fewer commercial patients to offset the revenue shortfall. That means expense management is absolutely critical to financial sustainability. Greater scale, in turn, allows for greater efficiency when it comes to expense management.

In addition, Pennsylvania has a prevalence of prominent integrated delivery and finance systems — such as Highmark-AHN, Jefferson, UPMC and Geisinger — that are competing directly with each other. On top of that, the remaining commercial insurers having dominant market share, such as Independence Blue Cross in the Philadelphia area. This has led to the natural conclusion that, as a provider, you need to have significant scale in any negotiation with insurers. Consolidations are one way to achieve that scale.

I would expect that the consolidation will continue and evolve, particularly as value-based and risk-based contracting takes greater hold and forces hospitals to be even more efficient on expense management.

Jim Brexler. President and CEO, Doylestown Health. I think it's important to note that every consolidation has a unique backstory or reasoning — a strategic decision, a financial crisis, or regional or national market dynamics. That said, all health systems have been influenced by the challenges of reduced revenue streams, increasing costs, and the demand for continued access to capital and human resources to meet the need to stay at the forefront of advances in medicine and technology.

For Doylestown Health, those pressures led our board (Boards of Trustees) to seek out an organizational model that would assure the sustainability of our mission and the continued delivery of high-quality care in our community. That process brought us to embark on a journey to become a part of Penn Medicine, which we believe not only provides sustainability, but importantly, opens the door to even greater opportunities for our patients.

System consolidation and alignments are likely to continue for the foreseeable future. But I also believe we are likely to see innovative models and partnerships between payers and providers.

Nick Barcellona, CFO, WVU Medicine (Morgantown, W.Va.): We are in Morgantown, we're only five, six miles south of the Pennsylvania border, so they're very much our next door neighbor. Very close to Pennsylvania and very close to Ohio. We certainly live and work in that market, we do have Uniontown hospital. That's one of our more recent additions to the family. We just opened up OB and women's services there. So we're doing deliveries. We had our first set of babies born there a few weeks ago at this point. 

It's really exciting for us, but that market is challenging, right? It's a hyper competitive market. You have some large health systems. You have a number of independent hospitals and providers in that market as well. I would describe it as hyper competitive, and it's a sort of a microcosm of what you're seeing at the national level, where, if you follow any of the other reports that come out related to, sort of the health of the industry your organization is an organization that puts out some of those reports, you've kind of seen margins stabilize, if you will, since the pandemic. But you have to dig a little bit deeper and kind of scratch that surface and go down a couple layers, because what you're really seeing is some health systems do extremely well, and other health systems that aren't doing well continue to face greater and greater challenges. You're seeing this wide variation in performance. 

When you take an average, or when you look at a median, it kind of looks like everything's fine, but you have to dig a little bit deeper than that. I think you're only seeing those challenges continue and sort of escalate. 

We work very hard to make sure that we're maintaining margin, that we're stabilizing and strengthening the balance sheet that we're delivering from a cash flow perspective, and it is not easy to do. This is not an easy industry that we have all chosen to work in. I think that hyper competition that you see in Pennsylvania, really, in both the eastern and western sides of the state, I think just makes it that much harder. You have sort of a case where you have some winners, and then you have some losers, and unfortunately, it's kind of hard to say it that way, but I think that's the reality. I think you're going to see more of this. You're going to see more of this consolidation because of those challenges. 

Joel Yuhas, Executive Vice President, UPMC, and President, Health Services Division, UPMC (Pittsburgh): Hospitals and health systems across the country have each been working through their recovery journey to emerge from the challenges faced during COVID and to normalize operations. In some ways, Pennsylvania is no different than other states. During the height of the pandemic, we saw large scale retirement and attrition within the workforce, exacerbated by the halting of nursing and other ancillary training programs, which injured the workforce pipeline for years to come. Similar workforce challenges in non-healthcare areas led to rising labor costs and translated into increased expense in supplies, consumable products and purchased services, while at the same time healthcare reimbursement declined. A perfect storm.

While Pennsylvania has experienced many common challenges, we are also facing an aging demographic, declining population in many areas, lower reimbursement and consumers who want more care where they want it, when they want it and closer to where they live and work — leading to more care being delivered outside of the hospital.

These evolving pressures have impacted hospitals and health systems in a number of ways, creating new challenges. Many independent hospitals and smaller health systems are realizing, to survive among the pressures of increased costs and lower reimbursement, they must consider partnerships with other larger systems to continue to serve their communities and preserve essential health services.

Rural hospitals are uniquely challenged. Situated in small communities without access to a large workforce, difficulty in recruiting physicians, high infrastructure costs and low volume that doesn't generate enough revenue to enable sustainable viability under the current environmental pressures — these hospitals are often forced to regionalize services or face closure. Seeking a partner who will help them shoulder infrastructure costs, bring additional labor resources, help them overcome the high costs of federal and state regulatory requirements and gain cost efficiencies due to size and scale are critical success factors for their survival. Many rural hospitals face very difficult decisions on reducing specialized services to ensure basic health services remain available in their local communities. 

These evolving pressures will persist. In a post-pandemic world, they are our "new normal" and will likely continue to inspire consolidation among hospitals and health providers. Services among rural hospitals will likely continue to face regionalization in favor of continuing to provide essential health services within their communities.

At the same time, hospitals and health systems are reinventing themselves and embracing new technology, innovative care delivery models and a sense of urgency to respond to payer and consumer demands for more ambulatory access to care. Hospitals will continue to become more specialized centers where the infrastructure costs of high-acuity services can be overcome with additional volume, reimbursement and improved quality through a skilled workforce able to provide more efficient and technically excellent care.

At UPMC, we have constantly adapted to a changing healthcare environment. During COVID, like others, we experienced significant workforce shortages, we created an internal staffing agency to ensure we kept every bed, every service, every location open. We also knew that someday the crisis would normalize. Recognizing that our employees are our most valued asset, we expanded our schools of nursing and our relationships with local technical schools, colleges and universities to rebuild a workforce pipeline that was severely disrupted.

Our community mission and service to our patients has always been a priority. In Lock Haven, we maintained essential emergency and outpatient services. In Kane, we embraced technology to expand our telemedicine capability and access to emergency and specialty services. In Mercer County, we expanded women's health, cancer, surgical services and emergency department and inpatient hospital bed capacity to ensure our commitment to those communities was clear and responsive.

We will continue to see more change in healthcare. And at UPMC, we will continue to adapt and evolve to fulfill our mission and privilege of caring for the communities we serve, both today and into the future.

Nicole Stallings, President and CEO, The Hospital and Healthsystem Association of Pennsylvania: Pennsylvania hospitals' priority is preserving access to high-quality care in their communities. As more and more hospitals and health systems across the state experience financial distress, we have seen an increase in mergers that aim to promote long-term stability and protect access to care.

More than half of the commonwealth's acute-care hospitals are operating at a loss, according to the most recent data from the Pennsylvania Health Care Cost Containment Council, and a third have experienced multiyear losses. The cost of providing care has skyrocketed while payments have not kept pace. At the same time, hospitals continue to grapple with continuumwide workforce shortages, outdated regulations and what's widely recognized as one of the most challenging medical liability climates nationally. HAP's analysis found that 80% of the financially distressed Pennsylvania hospitals involved in mergers and acquisitions over the past decade continue to serve their communities today.

HAP can't predict the future but is reinforcing for policymakers the critical need to address the underlying causes of hospital financial instability. We recently announced our new access agenda, focused on keeping high-quality care in Pennsylvania communities.

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