Summary
The massive Jefferson Health-LVHN hospital merger was quickly approved without consideration of public health equity. Pennsylvania needs to take a different approach next time.
A $14 billion hospital merger that threatens to bring new hardship to rural Pennsylvanians was abruptly approved earlier this month, thwarting community expectations of a slower and more stringent review of the deal.
The marriage of Jefferson Health and the Lehigh Valley Health Network creates the state’s second-largest nonprofit hospital system, affecting 30 hospitals and 700 separate care sites that together employ 65,000 people. It is the latest example of a dramatic nationwide rise in often-harmful hospital mergers. While roughly 1,600 such deals closed from the late 1990s to the mid-2010s, the rate of such acquisitions has since spiked: At least 428 hospital mergers have been approved since 2018 alone.
Merging hospitals often cut essential services. Mergers often promise stability and then deliver the opposite, reducing access to lifesaving healthcare in regions that need it most. More than 130 rural hospitals in the US closed from 2005 to 2020, typically following a merger such as the one Pennsylvania officials approved this August.
The eastern Pennsylvania tie-up is the latest in a string of acquisitions by Philadelphia-based Jefferson Health, which has followed the alarming national trend of slash-and-burn hospital consolidations. It laid off about 1,000 people following the most recent of a string of mergers that expanded Jefferson’s holdings from three to 18 hospitals, structuring the cuts to avoid having to file mass-layoff notices with the state. After a 2021 acquisition, Jefferson closed an emergency department in Elkins Park and directed its ER patients to drive 45 minutes south to Jefferson University Hospital instead – typifying a pattern that researchers say endangers lives by straining hospital capacities and dilating patient transport times.
In contrast to healthcare workers and rural patients, hospital executives did well out of the deals: Jefferson reportedly paid then-CEO Stephen Klasko $10 million in 2021 and another $8 million upon his retirement the next year.
Jefferson’s past patterns suggest that the new Lehigh Valley deal will bring future consolidation in a region already struggling with another troubling issue: Nursing vacancies in the LHVN network are 30% higher than the state average. This shortage adds further strain to an already overburdened healthcare system and raises concerns about the network’s ability to provide quality care during and after the merger.
Despite these worries, state officials approved the merger less than eight months after it was proposed – faster than one recent merger involving just a single hospital. That swift process does not appear to have featured much of any public input, prompting local groups to raise alarms about a lack of transparency.
How is this possible? The answer lies in the current laws and regulations, which are woefully inadequate at providing significant oversight of these acquisitions. Federal law provides no guidance beyond antitrust regulation, leaving the issue of merger oversight to a patchwork of state laws across the country. The pace and scale of these mergers highlight a critical gap in Pennsylvania’s regulatory framework, allowing hospital consolidation to accelerate unchecked – and to cite their operating deficits as a mark in favor of approving mergers that can only cut costs if they also reduce service to the public.
Pennsylvania’s Health Care Facilities Act of 1979 regulates healthcare operations by requiring licensure, ensuring compliance with health standards, and mandating periodic reporting. These measures aim to ensure efficient, high-quality service delivery while promoting competition and innovation. The statute also once policed mergers and other business decisions on behalf of the public, to prevent the sorts of duplicative inefficiencies that undermine hospitals financially – and to ensure new projects and proposed mergers benefited the community. But those public protections were stripped from the law in 1996 when legislators terminated the Certificate of Need (CON) program that required such oversight.
Without the CON program, hospitals and mergers are only reviewed by the Attorney General under the auspices of the state’s broader antitrust laws, which focus on market competition concepts and are less tailored to the specific realities of the healthcare sector. The change has not served Pennsylvanians well. The burden of proving harm to competition is so high that blocking mergers is nearly impossible: The law is interpreted as prohibiting hospital mergers only if they leave a market without any hospital service at all. Worse, even a hospital that gets a merger over that low bar is then free to cut off services after approval. This loophole allows mergers that could raise prices and reduce competition to slip through the cracks, ultimately failing to protect patients’ access to affordable and quality healthcare. The current oversight is insufficient, leaving communities vulnerable to the negative impacts of unchecked healthcare consolidation, and cutting them out of the review process entirely.
If you want to see how these unchecked mergers create near-monopolies, just look at the University of Pittsburgh Medical Center (UPMC). The UPMC system includes over 40 hospitals (18th-most in the nation) and employs over 95,000 workers, making it the largest private sector employer in Pennsylvania. In January 2024 an antitrust class action lawsuit was filed against the UMPC Healthcare system.
Some lawmakers are trying to fix things, proposing updates to the 1979 HCFA to better protect health systems. House Bill 2344 requires health systems and providers to inform the state before making major changes, like mergers, buying or selling significant assets or forming new partnerships. The Attorney General’s review of hospital mergers would key on whether they are in the public interest – a higher bar than the general competitiveness standard currently applied, but a lower one than in some other states. HB2344 lacks elements to protect communities from closures and consolidations and ensure that mergers result in equal or better care for the community, especially the communities most at risk of systemic health disparities. This bill offers minimal improvement and does not adequately address the risks to communities inherent in healthcare mergers.
Pennsylvania’s bill falls short of the models set by other states. It lacks robust mechanisms to prevent the formation of healthcare monopolies even while retaining antitrust, rather than public good, as its sole measure of merger efficacy. The bill could benefit from stronger provisions to monitor and limit market concentration, such as mandatory antitrust reviews for all significant transactions. Many states have included review against state goals related to health equity, cost, access and quality. The bill does not specify detailed criteria or benchmarks for assessing whether a transaction is in the public interest. This vagueness allows for subjective interpretation and potentially inconsistent application of the law. Additionally, it does not adequately address the need for rigorous, ongoing oversight to ensure competitive practices post-merger. The absence of specific criteria to evaluate the impact on competition and consumer choice may allow large healthcare entities to dominate the market, potentially leading to higher costs and reduced service quality.
Further exacerbating the issue, there is little to no oversight following state-approved mergers, even when hospitals fail to meet the agreed terms – as they too often do. Ballad Health, for example, failed to meet about 80% of quality benchmarks agreed to in the merger and performed $148 million less in charity care per year than the deal had obligated the company to provide. State officials have imposed no significant accountability for Ballad’s broken promises in any of the three southern states where patients have been harmed.
Fully effective hospital merger oversight legislation would attach merger review to health equity and quality-of-care goals, recruit state health officials into the process alongside Attorneys General, provide for extensive post-approval monitoring to hold merged hospitals to their promises and impose fines for violations.
By implementing these measures, the bill would create a more robust framework that genuinely protects public health interests, ensures transparency and involves the community in critical healthcare decisions, ultimately leading to better outcomes for all residents.
Devin Thompson is NCRC’s Director of Health Equity and Impact.
Justin Sackey is a Health Equity Intern at NCRC.
Photo by Jon Tyson on Unsplash
