Abington Health in Montgomery County and Center City’s Jefferson Health System have taken a step closer to a merger by signing a letter of intent to work toward a final agreement, the two organizations said Wednesday.
The proposed deal, which could be completed next year, comes just months after Jefferson split amicably from its former longtime partner, the highly profitable Main Line Health system.
Stephen Klasko, Jefferson’s president and chief executive, said the structure of the proposed merger with Abington would allow him to achieve something that was not possible with Main Line Health.
“The real issue is to create a nimble, flexible, totally strategically aligned clinical and economic unit,” Klasko said. “For lots of reasons with Main Line Health, that wasn’t going to happen.”
The proposal includes an unusual governance structure for two organizations of such disparate sizes. Jefferson, which now includes Thomas Jefferson University and the affiliated hospitals, has $2.3 billion in annual revenue, according to Klasko.
Abington’s revenue in the year ended June 30 was $774 million, according to its financial statement.
Despite that difference in size, the two organizations will have equal representation on the board that will oversee the combined operations. The plan is to include two to four additional board members from outside the two nonprofits.
Klasko said the idea of equal representation on the board came from Jefferson and was not negotiated by Abington.
“This shared governance is not a gimmick,” said Klasko, who will be president and CEO of the combined entity. “What it allows us to do is literally start from scratch with a board that is not thinking of themselves as Jefferson and Abington.”
The new board will have fewer than 20 members, said Laurence Merlis, Abington’s president and CEO, whose role in the new organization has not yet been determined.
“We want a very small guiding group,” said Merlis, who is making his second attempt to find a merger partner for Abington. A plan in 2012 to merge with Holy Redeemer Health System was scotched by community opposition to Abington’s willingness to stop performing abortions as a condition of merging with the Roman Catholic hospital.
For years, health-care experts have been predicting a wave of mergers in preparation for a time when health care is much less focused on hospitals than it is now, but the Philadelphia region has seen relatively little consolidation.
Abington and Jefferson are among the financially stronger systems in the region and could likely continue independently, Merlis and Klasko said, but merging now would give them a chance to prepare for the expected new world of health care from a position of relative strength.
By contrast, when Crozer-Keystone Health System, in Delaware County, announced last week it had hired an adviser to explore a possible merger, it was acting from the financially weak position of having lost $33 million in the year ended June 30.