- In 2017, the healthcare industry saw a boom of hospital merger announcements. And many of those deals are set to close in 2018 pending federal and state regulatory review.
Hospital merger and acquisition activity last year was well on its way to beating the 102 deals announced in 2016, according to a Kaufman Hall analysis from October 2017. Last minute announcements in the final two months of the year may have helped 2017 to see a record number of hospital merger transactions.
While 2017 may have been the year of hospital merger announcements, 2018 is likely to surpass last year’s deal volumes as hospitals and health systems develop the capabilities needed for value-based reimbursement and healthcare consumerism.
Here are six hospital merger deals expected to launch this year.
Advocate Health Care and Aurora Health Care
Advocate Health Care, the largest health system in Illinois, recently inked a deal with Wisconsin-based Aurora Health Care to create the tenth largest non-profit hospital system in the country.
The large organizations plan to establish a merged system of 27 hospitals in Illinois and Wisconsin by 2018 that would bring in about $11 billion in annual revenue.
This is Advocate Health Care’s second recent attempt to complete a hospital merger deal. The health system abandoned a plan to merge with NorthShore University Health System in March 2017 after the Federal Trade Commission (FTC) tried to stop the merger.
FTC officials expressed concerns that combining the two Chicago-based health systems would spur antitrust behavior. The federal agency reported that the merged system would control over one-half of hospital inpatient services in the region, possibly leading to higher healthcare costs and reduced incentives to improve care value.
However, Advocate Health Care’s most recent hospital merger deal involves hospitals in distinct markets, stated the health system’s President and CEO Jim Skogsbergh. “This is not a series of ZIP codes in the northern area of Chicago,” he told The Chicago Tribune.
Advocate and Aurora Health Care anticipate closing the hospital merger deal by mid-year 2018 depending on federal and state regulatory review and approval.
Beth Israel Deaconess Medical Center and Lahey Health
The Massachusetts Health Policy Commission recently delayed a hospital merger deal between Beth Israel Deaconess Medical Center and Lahey Health.
The Boston-area health systems finalized a hospital merger agreement in July 2017. The proposed deal also included Anna Jacques Hospital in Newburyport, New England Baptist in Boston, and Mount Auburn Hospital in Cambridge.
Beth Israel and Lahey Health agreed to create a 13-hospital system with over 800 primary care physicians and more than 3,500 specialists across the state.
The deal would mark the largest hospital transaction in Massachusetts in several decades, local news sources reported.
The merged system would also serve as a competitor of the state’s largest health system Partners HealthCare, which includes 10 hospitals and $12 billion in annual revenue.
However, the Massachusetts Health Policy Commission announced that it will further review the Beth Israel-Lahey Health merger deal to assess its impact on healthcare costs, care quality, and care access.
“This transaction involves some of the biggest and most well-established health systems in the Commonwealth,” Stuart H. Altman, Chair of the commission, wrote on the state’s website. “It represents the most significant change in the structure of the Massachusetts healthcare market in more than 20 years, and it will further consolidate our healthcare market into a small number of major systems and a declining number of independent community hospitals.”
The review will push the potential hospital merger into 2018.
Carolinas HealthCare System and UNC Health Care
Carolinas HealthCare System and UNC Health Care planned to sign a final agreement to merge by the end of 2017. However, ongoing negotiations between the health systems in North Carolina will likely cause the proposed hospital merger deal to be finalized by the first quarter of 2018.
The health systems signed a letter of intent to combine their clinical, medical education, and research resources in August 2017.
Although the deal would not be considered a legal merger because the systems would not transfer assets out of the state’s control, reported The News & Observer. Rather, the combined system would act as a joint operating company.
Carolinas HealthCare System already leads Charlotte, NC’s healthcare market. The system is one of the largest employers and hospital chains in the state, with 40 hospitals and 900 care sites controlling about one-half of the market.
The deal would give Carolinas HealthCare System even more clout by creating one of the largest hospital chains in the US, with more than 50 hospitals and 90,000 employees.
The health systems plan for the joint operating company to increase access to affordable care. But critics of the deal have already warned North Carolinians that the hospital merger may actually increase prices.
“Bigger is not better. Bigger is more consumer-unfriendly,” Lawton Burns, a professor at the University of Pennsylvania’s Wharton School, told The Charlotte Observer. “What they do is they put these systems together to basically have more bargaining power with the insurers. They don’t improve quality of care, they don’t reduce the cost of care and they don’t necessarily increase access to care.”
Federal and state officials have yet to review the proposed hospital “merger” deal for potential healthcare cost concerns because the systems have not completed negotiations for the deal.
Dignity Health and Catholic Health Initiatives
California-based Dignity Health and Colorado-area Catholic Health Initiatives anticipate operating under a new name in a new city by the second half of 2018. The two health systems signed a definitive agreement to merge in December 2017.
The merged organization, which has not been named yet, will include over 700 care sites and 139 hospitals across 28 states, with a corporate base in Chicago.
Dignity Health and Catholic Health Initiatives aim for the hospital merger deal to boost community-based care, improve population health and chronic disease management, and enhance health IT capabilities.
“We are joining together to create a new Catholic health system, one that is positioned to accelerate the change from sick-care to well-care across the United States,” stated Kevin Lofton, CEO of Catholic Health Initiatives. “Our new organization will have the talent, depth, breadth, and passion to improve the health of every person and community we serve.”
The new health system will also expand the charity care mission of both Dignity Health and Catholic Health Initiatives. The health systems provided approximately $4.7 billion in charity care, community benefit, and uncompensated care for Medicare and Medicaid beneficiaries combined in 2017.
In addition to federal and state scrutiny, the proposal to create a new Catholic health system also depend on church approvals.
Partners HealthCare and Care New England Health System
In April 2017, Care New England Health System of Rhode Island signed a letter of intent to join Massachusetts-based Partners HealthCare. But negotiations to close the deal have taken longer than anticipated for Massachusetts’ largest health system and Rhode Island’s second-largest health system.
The health systems will continue to negotiate the hospital merger deal until Jan. 31, 2018, local news sources reported.
Care New England Health System’s financial losses may be to blame for the delayed deal, The Boston Globe reported. The health system reported a $47 million loss on operations in the fiscal year that ended in September. The system already lost $68 million the previous fiscal year.
The hospital merger deal would extend Partners HealthCare’s footprint to Rhode Island. The Massachusetts health system primarily operates in Massachusetts, but leaders recently opened a hospital in New Hampshire.
The deal would officially add Care New England Health System’s three hospitals to the Partners network. The hospitals informally collaborated with the Massachusetts health system in the past.
Providence St. Joseph Health and Ascension Health
Non-profits Providence St. Joseph Health and Ascension Health allegedly entered talks regarding a potential hospital merger, The Wall Street Journal recently reported.
The systems have not confirmed that they will merge. But if they do finalize a deal, the combined system would include 191 hospitals across 27 states and earn annual revenue of $44.8 billion, according to the article. The merged entity would be the country’s largest hospital operator.
The health systems have not commented on the report. The Wall Street Journal emphasized that a hospital merger deal is just being discussed at this stage.