'Collaboration will reduce the cost': Penn Medicine CEO talks mergers, margin improvements

From maintaining a positive ratings outlook to having an engaged workforce, Kevin Mahoney, CEO of the University of Pennsylvania Health System, part of Philadelphia-based Penn Medicine said overall, 2023 was great for the health system, and for 2024, it's about continued margin improvement.

"We remain focused but positive," Mr. Mahoney told Becker's. "Our margin is about two and a half percent right now. For Penn Medicine to work, the health system needs to generate about 4% or higher because of the number of transfers we make over to the university to support research and education."

Most recently, the University of Pennsylvania Health System, a six-hospital system part of Penn Medicine, signed a nonbinding letter of intent to merge with Doylestown (Pa.) Health. 

"They'd be our seventh hospital. We have about a dozen criteria we go through: market, reputation, quality, financial stability, geographic representation. So that's an area of Philadelphia that we've not had as many assets, so we'll push forward on that this year," Mr. Mahoney said. 

Mr. Mahoney said Penn Medicine and Doylestown have been affiliated for decades, and while its board had initially wanted to stay independent, Penn Medicine maintained an open-door policy for the nonprofit health system.

"We always said if you get to a point where you don't think you can stay independent, the door's open. Yesterday, they walked through. We've known each other for a long, long time. The due diligence and everything will go very smoothly," Mr. Mahoney said. 

Mr. Mahoney told Becker's that, along with the proposed merger, Penn Medicine has upcoming plans to break ground on a large ambulatory center and a $400 million cancer center.

"Keep moving. I don't think this is a time in healthcare to tuck tail," he said. 

Like many hospitals and health systems, Penn Medicine has faced recent challenges with overwhelmed emergency rooms.

"That is something that we are sharply focused on, how we can handle those volumes in an efficient, high-quality way," Mr. Mahoney said.

Moving forward, Mr. Mahoney urges other healthcare leaders to take a step back and focus on collaboration.

"We compete on everything. One person puts up a billboard, everybody puts up a billboard. We need to take a step back. What are the items we need to compete on and what are the items that we should collaborate on, because collaboration will reduce the cost."

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