The University of Pittsburgh Medical Center (UPMC), the largest health system in Pennsylvania, on Friday told bondholders that it reached a definitive agreement on July 28 to acquire Pinnacle Health System of Harrisburg. The deal is expected to be completed Sept. 1, pending regulatory approvals.
The systems had been working on the deal since at least March.
With the acquisition of Pinnacle — which had $1.05 billion in revenue in the fiscal year ended June 30, 2016 — UPMC moves into direct competition with the University of Pennsylvania Health System, which owns Lancaster General Health. Penn is the biggest health system in Southeastern Pennsylvania.
On July 3, Pinnacle bought four hospitals from Community Health Systems Inc. for $231 million in cash, according to Community Health’s quarterly report to the Securities and Exchange Commission. Included in that deal were two Lancaster County facilities: Lancaster Regional Medical Center in downtown Lancaster and Heart of Lancaster Regional Medical Center in Lititz.
“We’ll notice it at the margin, but with Lancaster, there we feel we are well-positioned,” said Ralph Muller, chief executive of the University of Pennsylvania Health System.
One of the keys to UMPC’s business is a large health insurance operation. Insurance accounted for $6.1 billion of UPMC’s $12.8 billion in operating revenue for the year ended June 30, 2016.
Muller said the UPMC-Pinnacle deal appeared to him to be more of a health-insurance move than an effort to draw patients to Pittsburgh from Lancaster County for the complicated treatments that can only be done at high-end academic medical centers such as those in Philadelphia and Pittsburgh.
UPMC insurance is coming even closer to Philadelphia.
Reading Health — which has agreed to acquire five hospitals in Philadelphia and Chester and Montgomery Counties for an undisclosed price — and UPMC Health Plan have a joint venture to offer health coverage and related services to individuals as well as employers and their employees in the Reading Health System service area.
UPMC already offers Medicare Advantage plans in Southeastern Pennsylvania and has been picked to provide managed Medicaid services in the region starting next year.
Pinnacle Health landed with UPMC on the rebound, after the Federal Trade Commission blocked Pinnacle’s merger with Penn State Hershey Medical Center over concern that the deal would allow prices to rise in the Harrisburg region.