Newly unsealed document shows how much Einstein Healthcare is worth to Jefferson

Einstein Healthcare Network is valued at $599 million in its proposed acquisition by Thomas Jefferson University. Einstein had tried to keep the valuation figure under wraps, but the federal judge in Philadelphia hearing the Federal Trade Commission’s bid to block the merger refused.

The unredacted complaint, unsealed Monday, also quotes from internal documents showing how sharply Jefferson and Einstein compete and how important the Einstein acquisition is to Jefferson chief executive Stephen K. Klasko’s goals.

“We have to continue strategically on the path to essentiality and Einstein is the key," Klasko said, according to the complaint. Essentiality means any insurer that wants to break into the Philadelphia market has to deal with Jefferson, the complaint said.

Jefferson and Einstein did not respond to a request for comment.

Under Klasko, Jefferson has ballooned in size, from three hospitals in 2015 to 14 now. Annual revenue has more than doubled, to $5.2 billion, making Klasko’s health-care empire a big player in the Philadelphia region. The Einstein acquisition would add hospitals in Philadelphia, East Norriton, Elkins Park, and the region’s largest inpatient rehabilitation hospital, MossRehab. Jefferson already owns Magee Rehabilitation.

The FTC sued last month to block the deal, announced nearly two years ago, because it was concerned that the transaction would increase Jefferson’s bargaining leverage with commercial insurers. In its Feb. 27 complaint in federal court, the FTC also alleged that the combination would reduce competition and raise prices in Philadelphia and Montgomery Counties.

To support the bargaining-leverage concern, the FTC quoted Jefferson’s chief financial officer. “We have significant leverage and need to use it as part of our financial improvement plan over the next few years,” the CFO advised Klasko. Jefferson’s CFO is Peter L. DeAngelis Jr., but he was not identified by name in the complaint.

Internal Einstein documents cited in the unredacted complaint also show that Einstein viewed Jefferson as a top competitor. “Jefferson Health is one of the top networks we aspire to compete with. They are better resourced and chosen over our services by potential patients,” Einstein marketing officials said, according to the complaint.

The $599 million value is not an amount that Jefferson has agreed to pay for Einstein, which had an operating loss of $4.3 million on $1.3 billion in revenue in the year ended June 30. No money will change hands in the transaction, if the two nonprofits prevail against the FTC and the Pennsylvania Office of Attorney General, which joined the FTC.

Despite the fact that Jefferson is not turning over cash in the deal, “the buyer and the seller both need to know the number to make a business decision as to whether or not they want to proceed,” said Joshua Nemzoff, a health-care investment banker based in New Hope.

Einstein argued to U.S. District Court Judge Gerald J. Pappert that the value should remain private because it was competitive and commercially sensitive information.

“In the event that the transaction is not consummated, Einstein’s ability to pursue negotiations with other potential acquirers of its various assets will be severely harmed by the public’s knowledge of the value of the transaction between the defendants," lawyer Stephen A. Loney, said in a filing supporting Einstein’s effort to keep the valuation private.

“Knowledge of the value of the transaction could impact potential future valuations for some combination of Einstein’s assets,” he said.

Jefferson itself has declined to disclose the price it proposes to pay Temple University for Fox Chase Cancer Center and Temple’s interest in Health Partners Plans, a Medicaid insurer in Philadelphia.