June 4, 2008

Excela Spent $14 Million for Mercy Jeannette

By Richard Gazarik

Excela Health paid nearly $14 million to acquire Mercy Jeannette Hospital as well as an adjacent medical building and parking garage, according to Westmoreland County real estate records.

Excela paid $9.8 million to buy the hospital and another $4 million to Jefferson Properties, a nonprofit corporation, which owned the garage and medical building.

Excela has pledged to invest $10 million into the Jeannette facility during the next five years. The hospital system's board of trustees will hold its annual public meeting Thursday at the Four Points Inn by Sheraton in Hempfield to talk about the takeover of Mercy Jeannette.

Jack Randal Poteet, who operates Jack Randal Poteet Associates of Overland Park, Kan., has appraised hospitals in Carlisle, Brandywine and Phoenixville, Pa. He said determining the value of hospital real estate is difficult because it depends on the amount of competition a facility faces.

"Every market is so different," he said. "Urban markets are so different from rural markets. You have to ask, 'Is a hospital functional? Is it competitive with peer hospitals in the area?' "

Poteet said hospitals in rural areas, even those without the latest medical technology, can have a high value if there is no competition from other health care systems.

"But not in an urban area," he added. "They must be modern in order to compete."

Other factors that determine the value of hospital real estate is whether it will continue to be used as an acute-care facility, the amount of land and what improvements have been made to buildings over the hospital's lifespan.

The acquisition of Mercy Jeannette eliminates Excela's last competitor based in Westmoreland County. Excela previously acquired Latrobe Area Hospital and Frick Hospital in Mt. Pleasant. Its flagship is Westmoreland Hospital in Greensburg. The Monsour Medical Center, also in Jeannette, closed several years ago. Citizens General Hospital in New Kensington was acquired by West Penn Allegheny Health System.

Still, Excela Health faces competition from a number of health care systems.

UPMC and West Penn Allegheny in Pittsburgh both draw patients from Excela's service area.

West Penn Allegheny operates the Forbes Regional campus in Monroeville, which attracts patients from the North Huntingdon, Irwin and West Hempfield areas. Excela also faces competition for patients in southern Westmoreland County from Highlands Hospital in Connellsville and The Uniontown Hospital, both in Fayette County. To the east, it faces competition from Indiana Regional Medical Center.

The Jeannette hospital was built in 1959 by the Sisters of Charity and for years was known as Jeannette District Memorial Hospital, a community-based hospital that served the city and neighboring communities such as Penn Township, Penn Borough, Adamsburg and parts of Hempfield.

In 2003, Pittsburgh Mercy Health System took over management of the financially troubled facility, which had been losing money since 2000. It was renamed Mercy Jeannette Hospital.

In April, Excela Health purchased the facility, which is expected to lose $12 million this year. The hospital lost $6.5 million last year.

The Jeannette facility has become a branch of Excela's hospital in Greensburg.

Acute-care hospitals have struggled financially for several years, according to the Pennsylvania Health Care Cost Containment Council.

Statewide, the average operating margins rose from 5.3 percent in 2006 to 6.5 percent last year. Excela Westmoreland's operating margin was 3.3 percent last year, and its total margin was 6.8 percent, according to the council's annual report.

Latrobe's operating margin was 0.34 percent, and its total margin was 4.7 percent. Frick, which has been losing money since 1998, reported a 0.64 percent operating margin.

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