Lancaster General Health, the organization that serves about three-fourths of Lancaster County's health care market, is looking at becoming part of the University of Pennsylvania Health System.
LG Health and the Penn system, UPHS, have signed a memorandum of understanding to explore "a consolidated relationship," the two organizations said Tuesday.
If those explorations bear fruit, LG Health would combine with UPHS, becoming a member organization, LG Health CEO Tom Beeman told LNP.
He called Penn a "world-class strategic partner" that shares LG Health's values and has complementary strengths.
LG Health and the Penn system have had a strategic alliance since February, allowing LG Health to more easily refer patients there for advanced treatment.
Similarly, LG Health has been a member of the Penn Cancer Network for three decades.
Beeman said LG Health would still have local governance. Most likely, it would include a couple of Penn system representatives, and the Penn system’s board would have one or two Lancaster County members.
Asked about LG Health's name and logo going forward, Beeman said LG Health and Penn would want to "co-brand," given the strength of both brands.
All those details remain to be worked out, assuming the consolidation moves forward, he said. Any deal would require regulatory approval, he noted.
A call to UPHS was not immediately returned.
The two organizations have not set a timetable or deadline for themselves. However, they should know within six months if they will move forward, Beeman said.
The consolidation would involve integrating numerous areas of patient care, including cancer, trauma, heart care, genetics, neurology and so on.
It also would integrate teaching and research efforts, Beeman said.
The result would offer "tremendous advantages" for local patients, he said. One example: Local patients who receive organ transplants at one of the Penn system’s flagship hospitals in Philadelphia could receive follow-up treatment from Penn staff based here.
LG Health explored partnering with a number of organizations, but ultimately decided its objectives "really could only be met by Penn," Beeman said.
One thing LG Health did not do was consider joining a for-profit health system.
"That was unthinkable," Beeman said, given LG Health’s history and mission as a non-profit organization.
Market and regulatory changes are driving consolidation throughout the American health care industry.
"Systems are striking deals that deliver larger scale, more leverage and more diverse business lines that executives contend are needed to manage increased insurance risk and reduce wasteful fragmentation," according to a June article in Modern Healthcare magazine.
“The problem is, coordination and competition are kind of antithetical,” Mark Pauly, a professor of healthcare management at the University of Pennsylvania, told the publication.
Some analysts predict the country's roughly 5,000 hospitals will be sorted into as few as 200 health systems within six years, Beeman said.
In LG Health's case, changes driven by the Affordable Care Act will cost it $250 million over seven years, he said.
Only large health systems can successfully absorb that kind of hit, he said. For nonprofit systems such as LG Health to survive, "it's pretty clear ... they're going to have to have a critical mass in the $5 billion to $10 billion range," he said.
UPHS lists its revenue in 2013 as $4.3 billion. LG Health's is just under $1 billion.
LG Health’s operations include Lancaster General Hospital and Women & Babies Hospital, plus numerous outpatient, express and urgent care locations and physician practices.
It also includes Pennsylvania College of Health Sciences.
UPHS’ flagship facilities include the Hospital of the University of Pennsylvania, the Penn Presbyterian Medical Center, and the nation’s first hospital, Pennsylvania Hospital.
The latter dates to 1751, and Benjamin Franklin was one of its founders.
The Penn health system along with the Perelman School of Medicine are together known as Penn Medicine.
(Editor's Note: The original version of this story included a "by the numbers" table for the two health systems. It was replaced Nov. 7 by a graphic with updated information.)