Jefferson Health cuts operating losses with $108 million sale of lab business

por John R. Fischer, Senior Reporter | August 17, 2023
Business Affairs
Thomas Jefferson University, owner of Jefferson Health, is selling off its lab business to Labcorp for $108 million.
A $108 million sale of its laboratory business to Labcorp significantly mitigated fiscal operating losses in 2023 for Thomas Jefferson University and its Philadelphia-based health system Jefferson Health, along with the sale of its stake in two other businesses.

Faced with higher costs for labor, drugs, and other supplies and the need to better manage the complex nature of its organization, which grew exponentially through a series of acquisitions, Jefferson made the decision to sell its lab business, along with 51% of its interest in Delaware Valley Accountable Care Organization for $25 million, and a noncontrolling interest in a mammography business for $19.7 million.

This led to a $79 million operating loss versus $231 million without the sales, which is more than $100 million higher than its $126 million operating loss the year before, according to The Philadelphia Inquirer. Additionally, revenue rose $1.8 billion from $7.9 billion to $9.7 billion in 2023, and the healthcare system also saw a 5.5% rise in inpatient admissions and an increase in outpatient visits, but a 7.9% decrease in inpatient surgeries.

Between 2015 and 2021, Jefferson acquired Abington Health, Aria Health, Kennedy Health System, and Einstein Healthcare Network, going from a 3- to an 18-hospital system. It also acquired Health Partners Plans, a Medicaid and Medicare insurer that it renamed Jefferson Health Plans; Philadelphia University; and Magee Rehabilitation Hospital.

While meant to expand its care reach and add additional revenue streams, the complexity of managing a larger healthcare system has created inefficiencies that executives are trying to address.

“One of the reasons we are at an inflection point now is that we have never rationalized the size of our workforce through four significant mergers,” Jefferson CEO Joseph Cacchione wrote in an internal message to employees.

Back in May, it announced that it would sell off select assets of its outreach lab services to Labcorp but retain and manage its own hospital labs for outpatient and inpatient care. It also laid off 1% of its workforce in July and eliminated an unknown number of vacancies.

Additionally, the organization said in January that it would restructure itself from five regions into three as part of a plan to improve its financial troubles.

Jefferson is one of several healthcare systems that have recently sold off their lab services to Labcorp. Tufts Medicine said this month it would do the same to avoid defaulting on a more than $800 million bondholder agreement. The move will eliminate nearly 600 positions, but the Massachusetts healthcare system says most employees will receive positions at Labcorp.

In early July, Legacy Health, in Oregon, said it would sell certain assets of its outreach laboratory business to Labcorp and also transfer management of its inpatient hospital laboratories to it.

Much of Jefferson’s revenue increase was attributed to Einstein and Health Partners, which were acquired in the fall of 2021.

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