Princeton Healthcare System, the nonprofit group that runs the University Medical Center of Princeton at Plainsboro and several other facilities, will become part of the University of Pennsylvania Healthcare System if a merger is approved by the two groups and regulators.

“Through this partnership, we will be able to do even more in terms of increasing access, and improving or enhancing the quality and scope of services available here,” said Princeton Healthcare CEO Barry Rabner.

The two hospital systems announced the proposed merger on July 13. The deal would be structured as a “membership swap” between the two nonprofit organizations rather than a sale, with Penn taking over all of PHS’s assets as well as the $300 million debt it incurred in building the new hospital in 2012. Rabner said the two hospital systems have signed a “letter of intent” to explore merging and that the entire process, including government approval, could take about a year. (Despite PHS’s debt, Rabner described the institution as financially healthy. He said the operating income for the group was break-even in 2015 — $18 million more than the year before — and that the picture was better for 2016.)

Peter Quinn, senior vice president and dean of physician services at Penn, said the desire for efficiency was driving the merger. “The only way to increase quality and lower costs is to coordinate care,” he said. “About 25 to 30 percent of all dollars we spend on healthcare are wasted, uncoordinated, or duplicative and the only way to actually address that is coordinated care.”

Rabner said that joining Penn Healthcare would allow better coordination for patients who received care at PHS as well as the current Penn system, which includes Hospital of the University of Pennsylvania, Penn Presbyterian, and four other hospitals and several other healthcare facilities. The system covers Pennsylvania, northern Delaware, and south and central New Jersey, with annual revenues of about $6.8 billion. PHS, which operates Princeton House Behavioral Health; rehab, home care, hospice care, ambulatory surgery, a fitness and wellness services; and primary and specialty medical practice, brings in $450 million a year.

The merger potentially offers other advantages, including access to Penn’s research programs. PHS currently does not do much research, Rabner said.

Rabner said doctors would continue to refer patients to other care providers both inside and outside of the healthcare system, but that doctors would be able to better share medical records with those inside of Penn. Penn is already operating a maternal fetal service at UMCPP. He said the merger would not affect how insurance companies covered services from either of the providers.

The merger is not a partnership of equals since Penn is much larger than PHS. However, the smaller system does offer at least one unique capability. “When PHCS becomes part of Penn Medicine, its Princeton House Behavioral Health unit will bring its extensive behavioral health services into the Penn Medicine system,” Rabner wrote in an e-mail. “These services, which include inpatient and outpatient care, are the most comprehensive in the region.”

Rabner said he did not expect any of PHS’s 3,000 employees to be laid off because of the merger, including himself. He will remain in charge of UMCPP under the new management structure.

PHS announced a year ago that it was looking for a healthcare system to form a partnership (U.S. 1, July 1, 2015.) Rabner said changes in the way healthcare providers were being paid for services was one of the main reasons for seeking a partnership. Partly due to the 2010 Affordable Care Act (Obamacare) hospitals are being paid more for keeping people healthy rather than performing procedures.

“The changes in reimbursement are huge drivers in how care is being delivered,” Rabner said. “The ACA has had a meaningful impact on our thinking as do changes that are being driven by employers and by commercial payers. We are evolving from a fee-for-service system to one that’s based on value, that really looks at the quality of care and cost of care and moving into a system where we will expect to be responsible for a population of people, not individuals as we are now.”

He said a bigger system offers efficiency of scale. “At our current size, the scale was not adequate, and it would be as part of the Penn system,” he said.

The future could bring even more mergers as hospital networks seek economies of scale. “I’ve heard estimates that in the future there will be five systems in the United States,” Rabner said.

Princeton HealthCare System: University Medical Center of Princeton at Plainsboro, 1 Plainsboro Road, Plainsboro 08536. 609-853-7000. Barry Rabner, president. www.princetonhcs.org.

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