Jefferson completes acquisition of Magee Rehabilitation

Thomas Jefferson University has completed its acquisition of Center City's Magee Rehabilitation, adding to a system that has grown under president and chief executive Stephen K. Klasko from three Philadelphia hospitals three years ago to 14 now.

Jefferson and Magee, once partners in the defunct Jefferson Health System, have a relationship that dates to 1978. Last February, they announced a preliminary deal to merge.

Klasko on Tuesday called the deal, finalized on Jan. 5, "the end of the longest engagement in history."

Under Klasko, Jefferson had acquired Abington Health in 2015 and Aria in 2016. Philadelphia University and Kennedy Health followed last year. In addition, Jefferson bought a controlling stake in Rothman Orthopedic Specialty Hospital, in Bensalem. Last fall, it announced a preliminary deal for Monell Center, a University City organization that researches the senses of taste and smell.

"I suspect he's not done yet," Fred D'Angelo, chair of the Magee hospital board, said during a ceremony at Magee.

In terms of revenue, Jefferson has grown from $2.2 billion in total revenue in the year ended June 30, 2013, the last fiscal year before Klasko's arrival, to a figure that is approaching $5 billion now, including deals completed after Jefferson's fiscal 2017. Magee had $60 million in revenue in the year ended June 30. Jefferson employs about 30,000 people. Magee employs 700.

Jefferson's expansion strategy has differed from that of the rival University of Pennsylvania Health System, which recently completed its acquisition of Princeton HealthCare System and now has a string of six hospitals that stretch from Lancaster County to central New Jersey, a region that Penn CEO Ralph Muller has described as a reasonable distance for patients to travel for complex care in University City, where Penn is building a $1.5 billion patient pavilion.

Penn also has a huge outpatient business.

Jefferson's deals, by contrast, have kept it closer to the core Philadelphia metropolitan area, with the goal, Klasko said, of getting academic-medical-center-level care out into communities, rather than creating a hub and spoke model that feeds referrals to a central point.

That has manifested itself, Klasko said, in the fact that Abington, Aria, and Kennedy chose to become part of Jefferson instead of another system. "They all had other choices. The other places they were talking to were talking about a hub and spoke. Nobody likes being a spoke," Klasko said.

Those deals have given Jefferson the scale, demographic mix of patient populations, and geographic coverage that make the nonprofit impossible for insurers or others to ignore if they want to enter the Philadelphia market, Klasko said.

Widely discussed in Philadelphia health-care circles is the expectation that the University of Pittsburgh Medical Center, which last year had more revenue from its insurance operations than from patient care, is angling to make a significant mark on the Philadelphia market.

Stuart H. Fine, a professor of health policy and management at Temple University's College of Public Health, said he could imagine an insurer contracting with Penn or Jefferson, but leaving both out of a network would be difficult.

"With no disrespect meant to St. Christopher's or A.I. DuPont, the one player in this market that's most difficult for an insurer to avoid contracting with isn't Penn or Jefferson,"  Fine said: It is Children's Hospital of Philadelphia.

One unusual aspect to the Magee deal is that the Magee Rehabilitation Hospital Foundation, which has about $70 million in assets, will remain independent, said Jack Carroll, Magee's president and chief executive. That did not happen, for example, with Abington Health Foundation, which had $732 million in net assets on June 30, 2016.

The members of the Magee board like their independence and want to be able to raise their own money, so they can support specific Magee programs, such as art and horticultural therapy, Carroll said. "They want to be able to control those resources," he said.