Penn may be looking to block suitors for Chester County Hospital

Posted: January 17, 2013

The University of Pennsylvania Health System's tentative deal to acquire Chester County Hospital in West Chester may be a move to block competitors from gaining control of a lucrative patient market, health-care experts say.

"I suspect that part of the reason was they didn't want it to fall into somebody else's hands," said Mark V. Pauly, a health-care economist at the University of Pennsylvania. Pauly said he had no inside information.

The two organizations said Friday that they had signed a nonbinding letter of intent, allowing Penn to delve more deeply into Chester County Hospital's weakened financial condition and work more broadly with the hospital community on a merger agreement.

Neither institution has made executives available for interviews.

Penn already is affiliated with the 220-bed hospital, one of four non-Penn institutions where Penn oncologists provide radiation treatments. Penn owns the Hospital of the University of Pennsylvania, Presbyterian Medical Center, and Pennsylvania Hospital. The three have 1,530 beds.

In fiscal 2012, Penn had $3.37 billion in patient revenue. Chester County Hospital's revenue was $274 million during that period.

Affiliations with Chester County Hospital and other institutions have made Penn's health system - which had an overall 7 percent operating profit margin over the last four years, compared to 1 percent at Chester County Hospital - a major referral center for high-end care in the Philadelphia region.

"From a referral perspective, it's locking up a very nice piece of the outer-ring market," Beth Wexler, a Moody's vice president involved in the agency's bond ratings for both institutions, said of the possible merger.

Overall, Penn's market share in a broadly defined Philadelphia region stretching to Berks and Lancaster Counties and southern New Jersey was 6.74 percent in fiscal 2011, according to a recent bond disclosure. That figure trailed Jefferson Health System's 10.38 percent market share.

But for the most complex surgeries and other treatments, Penn said its market share was 11.77 percent, slightly ahead of Jefferson's 10.98 percent.

Jefferson's Main Line Health system owns Riddle Memorial Hospital in Media and Paoli Hospital in Paoli. Both compete with Chester County Hospital, and each has received more than $100 million in infrastructure investments in recent years.

Christiana Care Health System is competing from the south, attracted by Chester County's population growth and high incomes.

Meanwhile, Penn's clinical relationships with Chester County Hospital probably deliver "a pretty steady stream of business and patients from that region," said Daniel M. Grauman, president and Chief Executive Officer of DGA Partners, a consulting firm in Bala Cynwyd.

That probably would change for Penn if another health system took over Chester County Hospital.

"If you want to have some presence and coverage, this was probably their last opportunity to do that," Grauman said.

Contact Harold Brubaker at 215-854-4651 or

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