Jefferson, Main Line Health split their financial partnership

Main Line Health and Thomas Jefferson University Hospitals Inc., the core of the Jefferson Health System since 1995, are separating financially, but will continue working together on patient care and in other areas, executives said Monday.

As part of the restructuring, Thomas Jefferson University Hospitals in Center City will refinance $325 million in debt. Main Line Health will retain $218 million of debt in the remaining Jefferson Health System shell, which will be renamed.

The academic partnership between Thomas Jefferson University and Main Line Health, where Jefferson medical students get some training, existed independently of Jefferson Health System (JHS) and will continue.

Patient care will not change, officials said. Clinical ties are expected to increase, they said.

The restructuring - coming about six months after Stephen K. Klasko took over as president and chief executive of both Thomas Jefferson University and the parent Thomas Jefferson University Hospitals Inc. - runs counter to what some analysts and consultants see as an inevitable consolidation of hospitals and health systems.

"In order for us to move forward, we have to both be nimble and agile, but also not be constrained by a corporate relationship that in some respects put some limits on what we could do," said Klasko, the first person to head both Thomas Jefferson University and the affiliated Jefferson hospitals since the founding of JHS.

His appointment showed that Thomas Jefferson University and the hospitals were becoming more closely affiliated, but the change was limited by the hospitals' inclusion in JHS, Klasko said.

Jack Lynch, president and CEO of Main Line Health for nine years, said JHS was successful at what it was set up to do: contracting with health insurers, jointly issuing debt, handling professional and general liability insurance, and setting minimum financial standards and quality standards.

But industry observers said the promise was much greater in the 1990s, when JHS was described by founding executives as "the seed of a large regional health-care network." It once included Einstein Health Network and Frankford Health System, now Aria.

JHS met the minimum standards of being a system, such as the legal threshold for negotiating jointly with insurers, said Daniel M. Grauman, president and CEO of DGA Partners, a consulting firm in Bala Cynwyd.

"They had more expansive expectations about what could be. It's very, very hard to do," he said.

Stuart H. Fine, who retired in 2013 after 25 years as CEO of Grand View Hospital and is now an executive in residence at Temple University's Fox School of Business, said the structure of health systems is likely to be very different in the future.

"So I don't believe that this is the end of the consolidation story for Main Line Health, Jefferson, or other providers in our region," he said.

Klasko and Lynch are enthusiastic about collaborating in an accountable care organization, an independent entity that could ultimately share in the financial risk of insuring patients, that will be spun out.

"The ACO is going to be the entity that we are going to use together to serve a much larger population than either one of us could serve on our own. It's going to be a contracting entity. It's going to be a quality entity," Lynch said.

A malpractice-insurance company also will be spun out and continue.

Jefferson Health System employs 39, Lynch said. Many are likely to find jobs at the other health systems, the ACO, or the insurance company. Those who don't will receive severance, Lynch said.

Magee Rehabilitation Hospital in Philadelphia, a nonvoting member of JHS, said the system's dissolution would not affect its ability to serve patients.

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