Doylestown Health is trimming financial losses and hitting its target to become Penn Medicine’s seventh hospital

The University of Pennsylvania Health System announced a preliminary agreement in January to acquire Doylestown Health, but there was a catch.

After losing money in three of the last four years, Doylestown had to trim its operating loss to $6.7 million for the year that ended June 30.

The nonprofit beat the target by $800,000, Doylestown CEO Jim Brexler said Tuesday. That means the system finished with a loss of roughly $5.9 million.

That achievement led to Wednesday’s signing of a definitive agreement for Penn to acquire Doylestown, a 247-bed hospital that will become the seventh in Penn’s system. Pending regulatory approvals, the deal is expected to be completed early next year.

If Doylestown had failed to reduce its operating loss by at least 12.6 million over the last year, Penn would have walked away, said Kevin Mahoney, CEO of the University of Pennsylvania Health System. “This would not have happened,” he said.

He’s glad Doylestown fixed its finances. “We are ecstatic that they are joining us. Great things are going to happen,” Mahoney said.

Adding Doylestown fills in a gap in Penn’s geographic coverage and secures referrals for its high-level care at its flagship hospitals in University City.

The Penn-Doylestown deal leaves Redeemer Health and Grand View Health as the only remaining single-hospital systems in the Philadelphia region. Both have been losing money. Redeemer announced in 2022 that it was looking for someone to take over its hospital, but that went nowhere.

Less than a year before signing its preliminary agreement with Penn, Doylestown Health celebrated its 100th anniversary.

The May 2023 event was held in the headquarters of the Village Improvement Association of Doylestown, a women’s group founded in 1895 to promote the health and beauty of the town.

Association committees ran the hospital until they hired the first professional administrator in 1960. Brexler is just the third to hold the top administrator’s job.

The association board ran the hospital with “patient persistence,” Brexler said at the event, with its emphasis on keeping services local and expanding them.

After COVID exposed its financial vulnerability, such fierce independence no longer made sense, Brexler said in January. He told the Doylestown board that Doylestown had to join forces with another organization to ensure its future in the community. “We have to be fiercely protective of the mission we’re serving.”

Doylestown will be a relatively small addition to Penn’s medical network. Doylestown had $418 million in revenue in fiscal 2023, compared to $10 billion for Penn’s health system. Neither system has released financial results for fiscal 2024, which ended June 30.

In addition to its three hospitals in Philadelphia — the Hospital of the University of Pennsylvania, Pennsylvania Hospital, and Presbyterian Medical Center — Penn also owns Princeton Medical Center in Plainsboro, N.J.; Chester County Hospital in West Chester; and Lancaster General Hospital in Lancaster.

As part of the Penn system, Doylestown will still have a local board of directors that will make some decisions, such as when to add a neurosurgeon or hire an obstetrician. Local boards also help set priorities. In Lancaster, homelessness is a growing problem, Mahoney said. “The Lancaster General board wants us to help tackle that.”

Financial matters, on the other hand, are handled at the system level, though each Penn hospital gets an individualized profitability target. The local board and hospital management have to understand how their hospital fits into a health system with one balance sheet, Mahoney said.

“A patient from Doylestown that’s seen at HUP, if that’s the right place, is as important as a patient in Doylestown staying in Doylestown,” he said.

Adding Doylestown Hospital has implications for Penn’s plans to break ground on a large outpatient center in Montgomeryville in February or March.

If weren’t for the Doylestown deal, “we probably would include radiation oncology and a surgery center“ at the new site, said Mahoney, predicting that it will “work hand-in-glove with Doylestown.”