Changing Face of Chester County Hospitals

  1. posted on wed, may. 26, 2004

    part of chesco facing big health-care change
    phoenixville hospital's sale would give new owner community health systems dominance in the area.
    by josh goldstein
    inquirer staff writer

    the proposed purchase of phoenixville hospital by community health systems inc. could substantially change the health-care landscape of one of the fastest-growing and most affluent parts of this region.

    with phoenixville - and an associated outpatient surgery center in limerick - the brentwood, tenn., for-profit hospital chain would gain a dominant position along the route 422 corridor and across western chester county.

    the purchase would complement the three other hospitals that community health has acquired in that area over the last three years.

    and with four hospitals in adjacent communities - and little competition from other local hospitals - community health would be positioned to coordinate and expand services, making them more attractive to local residents seeking care.

    the increased concentration has not escaped the notice of attorney general jerry pappert, whose office will review the deal to see if it harms competition in the area. the proposed sale needs the approval of pappert's office.

    phoenixville is a good fit for community health, which owns 72 community hospitals in nonurban communities.

    about 85 percent of community health's hospitals are in communities where they are the only hospital, said gary d. newsome, the senior vice president who oversees 15 of the firm's hospitals, including six in pennsylvania and one in salem, n.j.

    "our competition is the large urban facilities" where people go to get health-care services not available locally, he said.

    community health tries to expand services and physician specialists available at its hospitals so local residents do not have to travel to urban medical centers for care - which the company calls "outmigration."

    "in many of our markets, adding basic services is all it takes to capture market share, because you may not have had an orthopedic surgeon or some cardiac care," newsome said.

    that strategy has succeeded in winning the company praise on wall street.

    in a recent report on the company, merrill lynch & co. inc. health-care analyst a.j. rice wrote positively about community health's strategic focus on improving performance at its hospitals by offering services that would help persuade more local residents to seek care at its facilities.

    community health "has a substantial opportunity to improve margins at recently acquired hospitals through revenue enhancement activities as well as efficiency gains," he wrote.

    community health reported a profit of $131.5 million on revenue of $2.8 billion last year. shares rose 8 cents yesterday to $25.13, in the middle of its 52-week range of $18.43 to $30.73.

    another benefit to the company of its focus on nonurban hospitals is that more patients outside urban areas have private health insurance, making community health less dependent on the medicare and medicaid programs.

    for example, in the year that ended june 30, medicare, medicaid and charity care accounted for less than 39 percent of phoenixville's patient-care revenue, according to data from the pennsylvania health care cost containment council.

    "that is a very attractive patient mix," said michael d. rosko, a professor of health administration at widener university. it compares with a 59 percent average for hospitals in philadelphia - where some facilities get more than 70 percent of their money from government programs.

    rosko said the acquisition of 143-bed phoenixville from the university of pennsylvania health system would put community health in a strong position in a concentrated area.

    "in the region, their total market share is small, but their market share would be high in a very attractive submarket, and that could give them some clout" in negotiations with insurers, he said.

    community health already owns the 59-bed jennersville regional hospital in west grove, the 168-bed brandywine hospital in coatesville, and the 299-bed pottstown memorial medical center in northwestern montgomery county.

    newsome, the community health executive, said that there might be ways that hospitals so close to one another could cooperate, but that the company had no "predetermined" plan.

    "first of all, we have to complete this transaction with phoenixville," he said. "once that is done, we certainly will be looking for strategic opportunities."

    the purchase price has not been disclosed. newsome said there was not a predesigned strategy to acquire four pennsylvania hospitals in neighboring communities.

    nonetheless, when the pennsylvania attorney general's office reviews the transaction, as it does for all hospital sales, antitrust lawyers will join others examining the deal.

    "our antitrust lawyers are also reviewing this transaction to ensure that there is competition in the health-care market in that region," said sean connolly, a spokesman for the attorney general. "this is routine when a company owns other hospitals in the area."

    other hospitals in that area are the 171-bed paoli memorial hospital, owned by main line health and part of the jefferson health system, and the independent 238-bed chester county hospital.

    a public hearing on the proposed sale will be held at phoenixville hospital tomorrow at 10 a.m.

    dan grauman, a health-care consultant in bala cynwyd, said community health's growth in this region had coincided with the need by many hospitals to upgrade aging facilities.

    "the fundamental reason here as to why a brandywine, why a pottstown, and even why a phoenixville would solicit bids was access to capital," grauman said. "they all required substantial capital investment."

    newsome confirmed that the company puts significant amounts of money into the hospitals it buys, even building new facilities in some cases.

    no decision has been made on phoenixville, but a new building "is certainly one of the options that we will evaluate," he said.

    newsome added that one option that was not being considered was constructing a single hospital to replace both phoenixville and pottstown memorial.

    contact staff writer josh goldstein at 215-854-4733 or
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