NEW CASTLE — The increasing struggles of being an independent hospital led to the merger between Jameson Health System and UPMC.

The two hospital systems announced Tuesday a nonbinding letter of intent to merge Jameson Hospital into the UPMC network.

Jameson’s board of directors had been looking to merge with a larger partner for months due to financial struggles.

Steve Wagner, Jameson’s board chairman, said his hospital will be integrated with UPMC Horizon hospital, which has campuses in Greensville and the Shenango Valley.

“By doing this, we can better understand the needs of both communities and address any issues in our region,” he said.

The two sides expect to finalize the merger early next year. Jameson Hospital will be renamed UPMC Jameson at that time.

Ken DeFurio, president and CEO of Butler Health System, said he isn’t sure about what type of impact UPMC’s merger with Jameson could have on BHS, which has about 30 percent of patients come from outside Butler County.

He said it would be “naive” to say the merger would have no impact on BHS, but he added it wouldn’t change how BHS interacts with UPMC or Jameson.

“We talk to UPMC leadership all the time,” he said. “We have and will continue to collaborate with them where we can. And where we can’t collaborate, we’ll compete.”

As part of the Jameson-UPMC agreement, UPMC plans to invest $70 million for development of facilities and services at Jameson Hospital, with at least $15 million set for improvements during the next two years, according to Wagner.

UPMC also is expected to invest an additional $10 million for physicians recruitment and retention and $5 million to improve the hospital’s information technology systems.

UPMC also will assume Jameson’s $40 million in long-term debt and $15 million in outstanding pension obligation, Wagner said.

The Jameson and Horizon boards will merge to create one board over the facilities.

“What is proposed is a 19 member board,” Wagner said, adding eight members would be from each of the Jameson and Horizon boards, while three additional members would be from UPMC’s corporate offices in Pittsburgh.

Jameson also talked with Community Health Systems in Franklin, Tenn., and the Allegheny Health Network about potential mergers. But it ultimately went with UPMC because of the ability to stay a nonprofit and maintain a local focus on health care service.

“This was the best fit,” Wagner said.

The two sides plan to spend six months studying the health market in Lawrence and Mercer counties and developing a plan for the Jameson and Horizon hospitals.

Officials with the company said it was too early to pinpoint where the $70 million investment will go, but said the main goal is to best use the resources available.

“We want to deliver health care more efficiently,” Wagner said.

Officials said expanding clinics closer to or in Butler County is possible, but said the main focus will be on improving service in the communities where the hospitals are.

One of the leading causes of Jameson’s decision to merge was the Affordable Care Act, Wagner said, adding the new law is one of the biggest struggles facing independent hospitals.

“The past four or five years it has been tougher to remain independent,” Wagner said. “This (merger) made sense for Jameson to remain viable.”

DeFurio said the act’s regulations impose tough penalties.

Butler Health System is an independent health service provider in Butler.

“It’s a great challenge to remain independent,” DeFurio said, adding he’s never seen as much consolidation in the industry. “It’s driven by the Affordable Care Act.”

DeFurio said the act’s regulations have made it difficult for some smaller hospitals to compete against their larger counterparts.

The extra financial burden from the act, specifically declining federal reimbursements, are the major hurdle.

The act added financial regulations to hospitals, such as penalties to hospitals if patients return to the hospital within one month of being discharged.

Survey scores from Medicare beneficiaries also are proving costly to independent hospitals.

DeFurio said any hospital that falls behind the average rated coverage is penalized.

“This can all add up to tens of millions of dollars at risk,” DeFurio said.

DeFurio said BHS had a brief meeting with Jameson months ago to discuss the hospital’s intent to merge with another hospital, but said there was never any formal discussions about a merger with BHS.

“In the spirit of being a neighboring hospital we had a very brief meeting a while back,” he said. “It was nothing formal.”

DeFurio said BHS has no intention of merging with a larger hospital despite some of the challenges facing independents.

“I and the board study this issue all the time,” he said.

But just because the hospital is independent doesn’t mean it works alone.

“We at Butler Health System continue to believe in a strong, independent, community-based health care system,” he said. “That does not mean we can work in isolation.”

DeFurio said BHS works with UPMC and the Allegheny Health Network when it can.

Officials at the Grove City Medical Center could not be reached for comment on the merger.

Jameson Health System is a nonprofit health care system that includes inpatient acute care and outpatient hospital services at its two hospital campuses in New Castle.

It has more than 1,300 employees, 250 physicians and 25 facilities.

UPMC has more than 62,000 employees at more than 20 hospitals and 400 doctor’s offices and outpatient sites.