Excela, Butler health systems announce merger, creating region's 3rd hospital giant

A third Southwestern Pennsylvania health care conglomerate is in the works, as Excela Health and Butler Health System on Wednesday announced an intent to merge.

“We believe strongly that our new partnership will extend our intellectual and financial capital,” John Sphon, Excela Health chief executive officer, said in a prepared statement. “In doing so, we can enhance access to care, decrease the cost of care and continue to focus on providing improved experiences and outcomes for patients.”

The combined organization “will present the requisite scale to accelerate and elevate its relevancy … in the region’s highly competitive health care marketplace,” which is largely dominated by the health giants UPMC and Highmark Health’s Allegheny Health Network, according to a joint statement from Excela and Butler Health.

When combined, the system is expected to generate more than $1 billion in revenue, employ 7,300 people and have more than 1,000 physicians and practitioners to serve about 750,000 people in Butler, Clarion and Westmoreland counties.

The yet-to-be-named health system would bring together Excela’s three locations — Frick Hospital in Mt. Pleasant, Latrobe Hospital in Latrobe and its flagship Westmoreland Hospital in Greensburg — with the two Butler Health System hospitals — Butler Memorial Hospital in Butler and Clarion Hospital in Monroe Township, Clarion County.

Specific details weren’t released Wednesday. Further discussions, along with regulatory and final board approvals, could take months to complete.

“The new system will provide additional services and better access to those services,” said Ken DeFurio, president and CEO of Butler Health System. “We are pleased that this partnership amplifies our ability to provide tertiary care, yet remain physician led and community focused.”

Excela officials declined to comment further. Officials with the Butler Health System did not return a call seeking additional comment.

Dan DeBone, president and CEO of the Westmoreland County Chamber of Commerce, applauded the announcement and the impact it could have on the county.

“It’s just going to make us much better and put us more in line with many health systems we see throughout Pennsylvania,” DeBone said. “If anything, it’s an incredible move, and … having such a large employer in Westmoreland County … is just going to make both of our regions so much better in terms of our health care.”

With about 4,800 employees, Excela is the top private employer in the county — more than double United Parcel Service’s 1,500 workers and Polyconcept North America’s 1,200 employees, according to the county’s website.

DeBone suggested the combined system could make Westmoreland County attractive to new businesses and residents at a time when local leaders are working to increase the population, which has continued to slide for decades.

“Having two rural counties be able to merge and have such a large network of health services or health systems is something the chamber is very excited about,” DeBone said.

Butler Health System has more than 70 outpatient locations, employs 3,000 people and includes 270 providers, making it the largest employer in Butler County and the largest health care employer in Clarion County.

Pros and cons

Announcement of the merger comes as health systems nationwide are struggling financially as they come out of the covid-19 pandemic.

A recent disclosure report from Excela reflects that for the nine months ending March 31, the health system saw a $10.5 million operating loss margin compared with operating income of $29.8 million for that same period the prior year. That came after Excela received millions of dollars in covid relief funds, including a $5 million grant from Westmoreland County, which was awarded in October 2020 to help the system remain open while recouping revenue losses.

Butler Health System was in a similar situation. The organization recorded about $8.2 million in operating income losses in the 12 months ending March 31. That reflected a deeper loss than the same period a year earlier, when the health system reported about $6.8 million in operating income losses. .

It was unclear what role that played in the health systems’ decision to merge.

An October report from Kaufman, Hall & Associates released by the American Hospital Association found that partnerships, mergers and acquisitions can be an important tool for keeping financially struggling hospitals open while preserving access to care.

Based on data between 2015 and 2019, the report found that almost 40% of acquired hospitals were financially challenged, cited financial distress or both. Among acquired hospitals that cited financial distress as a key factor in the transaction, more than one-third had declared bankruptcy. Of those, more than 80% were saved from bankruptcy and remained in operation at the time of the report.

Barry B. Buckingham, executive director of the Pennsylvania Health Care Cost Containment Council, noted that perks of mergers and acquisitions include sharing of staff and combining of services. Cons frequently include moving services to different locations — making it less convenient for patients — and increased health care prices, Buckingham said.

For the proposed merger, Sphon and DeFurio highlighted that their health systems are culturally aligned, share mutual respect and have a common vision on national and regional industry transformation.

“Our alignment on these important elements of a partnership,” Sphon said, “will provide great value as we move forward.”