The landscape of health care in Westmoreland, Butler and Clarion counties could soon be changing in the wake of last week’s announcement that Excela Health and Butler Health System have inked an intent-to-merge agreement.
It is likely an effort by both systems to better position themselves as a player in a field dominated by regional health providers based in Pittsburgh, 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 University of Pittsburgh School of Public Health.
“It looks like what this is is simply a matter of partnering together to form a more protective defense against the larger systems and also to look for opportunities to maybe save 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 wouldn’t put the yet-to-be 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 trustees in the early 2000s. But it could boost the new system’s reach while making it viable in the suburbs and rural areas of Western Pennsylvania.
“It doesn’t seem like they’re looking to be or ever looking to be a primary competitor against UPMC or West Virginia or Highmark and Allegheny Health, but they’re trying to carve out a niche that allows them to have a longer term, viable pathway to remain in the market as a key player,” Driscoll said.
When combined, the new system is expected to generate more than $1 billion in revenue. It could employ 7,300 people and have more than 1,000 physicians and practitioners to serve about 750,000 people in Butler, Clarion and Westmoreland counties.
The new system would bring together Excela’s three locations — Frick Hospital in Mt. Pleasant, Latrobe Hospital and flagship Westmoreland Hospital in Greensburg — with the two Butler Health system hospitals — Butler Memorial Hospital and Clarion Hospital in Monroe Township, Clarion County.
Specific details weren’t released during Wednesday’s announcement. At the time, a prepared statement suggested the combined organization “will present the requisite scale to accelerate and elevate its relevancy … in the region’s highly competitive health care market.”
Excela declined further comment outside of the statement, noting that the intent to merge was just the first step in the process. Butler did not return a call seeking additional comment.
Mergers more common
Across the country, mergers and acquisitions have been common over the past several years. According to a report from the UCLA Anderson Review, more than 2,500 U.S. hospitals were involved in mergers or takeovers between 2000 and 2015. That number is not expected to slow anytime soon.
In Pennsylvania, several hospital and health system mergers have taken place over the past two decades, said Liam Migdail, spokesman 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 taken place to bring increased efficiency as well as other benefits such as the ability to purchase goods and services at lower rates and to create more revenue that could be used to modernize facilities while attracting new talent.
Mergers have proved fruitful for health systems struggling financially.
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 a combined $9 million in the previous fiscal year, while Latrobe lost $4 million, according to Tribune-Review archives.
Within the next fiscal year — after the merger — Excela reported a $4.4 million profit.
“That may have been kind of a driving motivation for them to go ahead and try and formalize this deal,” Broom said of Excela’s and Butler Health’s recent financial reports, “but there are a lot of organizations out there in the health industry space that have been facing that. A lot of it’s due to the pandemic.”
He noted that throughout the pandemic, services such as elective surgeries that generated revenue were shut down as facilities shifted services to covid-related care. As the pandemic continued, health care workforce was impacted as people left or shifted to different service areas, making it difficult to restart those paused services.
Denis Lukes — who retired from the Healthcare Council of Western Pennsylvania, a regional trade association representing a continuum of health care providers — said mergers are often used to ensure hospitals can survive.
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 a financial need.
“I think this will strengthen those two organizations on a combined basis, better position them with insurers,” Lukes said. “I think that will be significant, and I suspect we will see more of these things as time progresses. There really are fewer and fewer independent hospitals throughout Pennsylvania.”
In many cases, merging just makes sense, said Migdail, of the hospital and health system association.
“For hospitals to be able to continue to meet the needs of their communities, they need financial stability,” Migdail said. “Forming or joining health systems enables hospitals to take advantage of economies of scale and ease the burden of systemic challenges and risks that cause financial strain.”
Excela’s history in Westmoreland County began in 2003 when the Westmoreland Health System — which operated Westmoreland Regional Hospital in Greensburg and Frick Hospital — took its first steps toward merging with 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 the needs of the community.
The process took more than a year to complete and involved lengthy negotiations between the boards as well as the hiring of several consultants who helped with the process.
Driscoll noted that he sat on several boards during the time the mergers were taking place.
The merger, he said, better positioned the hospitals within the community.
“Obviously looking back, things could have been done a little differently … but I think it was good,” Driscoll said. “I think this Butler-Excela merger will prove to be the same. They’re not exactly contiguous, but there’s a lot of areas that will benefit from it in terms of costs, economic finance programs, so forth, so I think it’s all (going to) be good.”
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% of the county’s workforce — hold health care and social assistance jobs.
County Commissioner Doug Chew said he was excited about the merger.
“Excela was a good partner in our pandemic response, so having a more robust system will position us to respond even better to the county’s health care needs,” 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 businesses.
“As we work to increase population and job opportunities in the county, we can point to this merger as an example of Excela’s commitment to organize their operations effectively to deliver top-notch care to Westmoreland County residents,” Chew said.
Commissioner Sean Kertes said Excela officials notified county leaders about the merger on Wednesday, shortly before news of the deal became public.
“Excela is a great benefit for our community,” Kertes said. “This merger will help with its opportunity for growth and ensure Excela will be around Westmoreland County for years to come.”
Because the intent to merge is just the initial step, specific details regarding next steps have not yet been released.
According to Broom, when mergers are announced, officials will typically have several discussions that revolve around the combination of leadership and which entity will take the lead in the new organization; types of services provided by each entity and which facilities will provide specific services; finances; the combination of their supply chains; and how medical records will be combined and how data will be shared across the larger entity.
“There’s a lot of pieces that have to go into play when you have these two organizations that merge into a new one,” Broom said.
Those discussions, along with regulatory and final board approvals, could take months to complete.
Megan Tomasic is a Tribune-Review staff writer. You can contact Megan at 724-850-1203, firstname.lastname@example.org or via Twitter .