Category Archives: Market Consolidation

United Healthcare: Anatomy of a Behemoth

Posted on by • Posted in Antitrust, Competition, Health Insurance Industry, Health Policy, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Medical Loss Ratio (MLR), Optum Health, Optum Insight, Optum Rx, Pharmacy Benefits Management, Profit Model, Profit Motive, UnitedHealth Group, UnitedHealthcare, Value Proposition, Value-Based Healthcare, Vertical Integration • Leave a comment

medium.com/@tcoyote/united-healthcare-anatomy-of-a-behemoth-63dc5f1b485a

In the mid-1980’s, managed care advocate Dr. Paul Ellwood predicted that eventually, US healthcare would be dominated by perhaps a dozen vast national firms he called SuperMeds that would combine managed care based health insurance with care delivery systems. Ellwood was a leader of the “managed competition” movement which advocated for a private sector alternative to a federal government-run National Health Insurance system. Ellwood and colleagues believed that Kaiser Foundation Health Plans and other HMOs would be able to stabilize health costs and thus affordably extend care to the uninsured.

The US political system and market dynamics would not co-operate with Ellwood and his Jackson Hole Group’s vision. In the ensuing thirty-five years, healthcare has remained both highly fragmented and regional in focus. However, unbeknownst to most, during the past decade, as a result of a major merger and relentless smaller acquisitions, two SuperMeds were born- CVS/Aetna and UnitedHealth Group, that whose combined revenues comprise 14% of total US health spending.

CVS/Aetna is slightly larger than United, by dint of grocery sales in its drugstores and its vast Caremark pharmacy benefits management business. However, CVS’s Aetna health insurance arm is one third the size of United’s, and though CVS is rapidly scaling up its care delivery apparatus through its in-store Health Hubs, it remains is a tiny fraction of United’s care footprint. Despite being slightly smaller at the top line, United’s market capitalization is more than 3.5 times that of CVS.

United’s vast scope is difficult to comprehend because much of it is not visible to the naked eye, and the most rapidly growing businesses are partly nested inside United’s health insurance business.

United employs over 300 thousand people. At $287.6 billion total revenues in 2021, United exceeded 7% of total US health spending (though $8.3 billion are from overseas operations).

In 2021, United was $100 billion larger than the British National Health Service. It is more than three times the size of Kaiser Permanente, and five times the size of HCA, the nation’s largest hospital chain. United is both larger and richer than energy giant Exxon Mobil. United has over $70 billion in cash and investments, and is generating about $2 billion a month in operating cash flow.

Its highly regulated health insurance business is the visible tip of a rapidly growing iceberg. Revenue from United’s core health insurance business grew at 11% in 2021, compared to 14% growth in United’s diversified Optum subsidiary. Optum generated $155.6 billion in 2021 (of which 60% were from INSIDE United’s health insurance business). You can see the relationship of Optum’s three major businesses to United’s health insurance operations in Exhibit I.

Optum is the Key to United’s Growth

Understanding the role of Optum is key to understanding United’s business. It is remarkable how few of my veteran health care colleagues have any idea what Optum is or what it does. Optum was once a sort of dumping ground for assorted United acquisitions without a seeming core purpose. A private equity colleague once derided Optum as “The Island of Lost Toys”. Now, however, Optum is driving United’s growth, and generates billions of dollars in unregulated profits both from inside the highly regulated core health insurance business and from external customers.

Optum consists of three parts: Optum Health, its care delivery enterprise ($54 billion revenues in 2021), Optum Rx, its pharmacy benefits management enterprise ($91 billion revenues in 2021) and Optum Insight, a diversified business services enterprise ($12.2 billion in 2021). Virtually all of United’s acquisitions join one of these three businesses.

Optum Health: The Third Largest Care Delivery Enterprise in the US

By itself, Optum Health is almost the size of HCA ($54 billion in 2021 vs HCA’s $58.7 billion) and consists of a vast national portfolio of care delivery entities: large physician groups, urgent care centers, surgicenters, imaging centers, and now by dint of the recently announced $5.7 billion acquisition of LHC, home health agencies. Optum Health has studiously avoided acquiring beds of any kind: hospitals, nursing homes, etc. and likely will continue to do so. Optum Health’s physician groups not only generate profits on their own, but also provide powerful leverage for United to control health costs for its own subscribers, pushing down United’s highly visible and regulated Medical Loss Ratio (MLR), and increasing health plan profits.

Optum Health began in 2007 when United acquired Nevada-based Sierra Health, and thus became the new owner of a small multispecialty physician group which Sierra owned. The group did not belong in United’s health insurance business and came to rest over in Optum. Over the past twelve years, Optum Health has acquired an impressive percentage of the major capitated medical groups in the US- Texas’ WellMed, California’s HealthCare Partners (from DaVita), as well as Monarch, AppleCare and North American Medical Management, Massachusetts’ Reliant (formerly Fallon Clinic) and Atrius in Massachusetts (pending) , Kelsey Seybold Clinic (also pending) in Houston, TX and Everett Clinic and PolyClinic in Seattle.

Optum Health claims over 60 thousand physicians, though many of these are actually independent physicians participating in “wrap around” risk contracting networks. By comparison, Kaiser Permanente’s Medical Groups employ about 23 thousand physicians. United’s management claims that Optum Health provides continuing care to about 20 million patients, of whom 3 million are covered by some form of so-called “value based” contracts. Perhaps half of this smaller number are covered by capitated (percentage of premium-PMPM) contracts.

Optum Health straddles fierce competitive relationships between United’s health insurance business and competing health plans in well more than a dozen metropolitan areas. Almost half (44%) of Optum Health’s revenues come from providing care for health plans other than United.

When Optum acquires a large physician group, it acquires those groups’ contracts with United’s health insurance competitors, some of which contracts have been in place for decades. Premium revenues from other health plans, presumably capitation or per member per month (PMPM) revenues, are one-quarter of Optum Health’s $54 billion total revenues. These “external” premium revenues have quadrupled since 2018, largely for Medicare Advantage subscribers. Optum Health contributes about $4.5 billion in operating profit to United. It is impossible to determine from United’s disclosures how much of this profit comes from Optum Health’s services provided to United’s insured lives and how much from its medical groups’ extensive contracts with competing health plans.

Optum Health’s surgicenters and urgent care centers provide affordable alternatives to using expensive hospital outpatient services and emergency departments, potentially further reducing United medical expense. This creates obvious tensions with United’s hospital networks, since Optum Health can use its large medical practices and virtual care offerings to divert patients from hospitals to its own services, or else render those services unnecessary.

Though some observers have termed Optum/United’s business model “vertical integration”-ownership of the suppliers to and distributors of a firm’s product– Optum Health has actually grown less vertical since 2018, with revenues from competing health plans growing from 36% of total revenues in 2018 to 44% in 2021. A 2018 analysis by ReCon Strategy found at best a sketchy matchup between United’s health plan enrollment by market and its Optum Health assets (https://reconstrategy.com/2018/04/uniteds-medicare-advantage-footprint-and-optumcare-network-do-not-overlap-much-so-far/.

Optum Rx: The Nation’s Third Largest Pharmacy Benefits Management Business

Optum’s largest business in revenues is its Optum Rx pharmaceutical benefits management (PBM) business, which generates $91 billion in revenues, and processes over a billion pharmacy claims not only for United but also many competing insurers and employer groups. Pharmaceutical costs are a rapidly growing piece of total medical expenses, and controlling them is yet another source of largely unregulated profits for United; Optum Rx generated over $4.1 billion of operating profit in 2021.

Optum Rx is the nation’s third largest PBM business after Caremark, owned by CVS/Aetna and Express Scripts, owned by CIGNA, and processes about 21% of all scripts written in the US. Pharmacy benefits management firms developed more than two decades ago to speed the conversion of patients from expensive branded drugs to generics on behalf of insurers and self-funded employers. They were given a big boost by George Bush’s 2004 Medicare Part D Prescription Drug benefit, as a “pro-competitive” private sector alternative to Medicare directly negotiating prices with pharmaceutical firms.

Reducing drug spending is one key to United’s profitability. Since generics represent almost 90% of all prescriptions written, Optum Rx now relies on fees generated by processing prescriptions and on rebates from pharmaceutical firms to promote their costly branded drugs as preferred drugs on Optum Rx’s formularies. These rebates are determined based on “list” prices for those drugs vs. the contracted price for the PBMs, and are actual cash payments from manufacturers to PBMs.

Drug rebates represent a significant fraction of operating profits for health insurers that own PBMs, particularly for their older Medicare Advantage patients that use a lot of expensive drugs. Unfortunately, PBMs have incentives to inflate the list price, because rebates are caculated based on the spread between list prices and the contract pricel Unfortunately, this increases subscribers’ cash outlays, because patient cost shares are based on list prices.

Optum Rx generates about 39% of its revenues (and an undeterminable percentage of its profits) serving other health insurers and self-funded employers. Many of those self-funded employers demand that Optum pass through the rebates directly to them (even if it means being charged higher administrative fees!).

Unlike the situation with Optum Health, the “verticality” of Optum’s PBM business-the percentage of Optum revenues derived from serving United subscribers- has increased in the last seven years, to more than 60% of Optum Rx’s total business. What happens to the billions of dollars in rebates generated by Optum Rx is impossible to determine from United’s disclosures. However, our best guess is that pharmaceutical rebates represent as much as a quarter of United’s total corporate profits.

Optum Insight: “Intelligent” Business Solutions

The fastest growing and by far the most profitable Optum business is its business intelligence/business services/consulting subsidiary. Optum Insight was generated $12.2 billion in revenues in 2021, but a 27.9% operating margin, five times that of United’s health insurance business. Optum Insight is strategically vital to enhancing the profitability of United’s health insurance activities, but also generates outside revenues selling services to United’s health insurance competitors and hospital networks.

The core of Optum Insight is a business intelligence enterprise formerly known as Ingenix, which provided “big data” to United and other insurers about hospital and pricing behavior and utilization-crucial both for benefits design and administration. In 2009, Ingenix was accused by New York State of under reporting prices for out of network health services for itself and its clients, which had the effect of reducing its own medical reimbursements, and increasing patient cost shares. United signed a consent decree to alter Ingenix business practices and settled a raft of lawsuits filed on behalf of patients, physicians and employers. Its name was subsequently changed to Optum Insight.

By dint of aggressive acquisitions, Optum Insight has dramatically increased its medical claims management business, consulting services and business process outsourcing activities. . Most of United’s investment in artificial intelligence can be found inside Optum Insight. Big data plays a crucial role in United’s overall strategy. Optum Insight’s claims management software uses vast medical claims data bases and artificial intelligence/machine learning software to spot and deny medical claims for which documentation is inadequate or where services are either “inappropriate” or else not covered by an individual’s health plan. Providers also claim that the same software rejects as many as 20% of their claims, often for problems as tiny as a mis-spelled word or a missing data field.

Optum Insight software plays a crucial role in helping United’s health insurance plans manage their medical expense. Traditional health plan profitability is generated by reducing medical expense relative to collected premiums to increase underwriting profit. These profits are regulated, with highly variable degrees of rigor by state health insurance commissioners, and also by provisions of ObamaCare enacted in 2010.

Though its acquisition of Equian in 2019 and the proposed $13 billion acquisition of health information technology conglomerate Change Healthcare in 2021, United came within an eyelash of a near monopoly on “intelligent” medical claims processing software. The Justice Department challenged this latter acquisition and United may agree to divest Change’s claims processing software business as a condition of closing the deal. Even without the Change acquisition, Optum Insight processes hundreds of millions of medical claims annually not only for United’s health insurance business but for many of United’s competitors.

However, Optum Insight’s claims management system can also be used to increase MLR if medical expense unexpectedly declines, exposing the firm to federal requirement that it rebate excessive ‘savings’ to subscribers. This happened in 2020, when the COVID pandemic dramatically and unexpectedly added billions to United’s earnings due to hospitals suspending elective care. The chart below shows United’s 2Q2020 earnings per share almost doubling due to the precipitous drop in its medical claims expenses!

Hospital finance colleagues reported an immediate and substantial drop in medical claims denials from United and other carriers in the summer and fall of 2020. United’s quarterly profits dutifully and steeply declined in the subsequent two quarters, because its medical expenses sharply rebounded. The rise in

United’s medical expenses helped the firm avoid premium rebates to patients required by provisions of the ObamaCare legislation passed in 2010. The firm did voluntarily rebate about $1.5 billion to many of its customers in June, 2020.

However the most rapidly growing part of Optum Insight is its Optum 360 business process outsourcing business, which helps hospitals manage their billing and collections revenue cycle, as well as information technology operations, supply chain (purchasing and materials management) and other services. Through Optum 360, Optum Insight has signed five long term master contracts in the past two years’ worth many billions of dollars with care providers in California, Missouri and other states to provide a broad range of business services.

With all these different businesses, it is theoretically possible for one piece of Optum to be reducing a hospital’s cash flow by denying medical claims for United subscribers, while United’s health insurance network managers bargain aggressively to reduce the hospital’s reimbursement rates while yet another piece of Optum runs the billing and collection services for the same hospital and its employed physicians, while yet another piece of Optum competes with the hospital’s physicians and ambulatory services, diverting patients from its ERs and clinics, reducing the hospital’s revenues.

It is not difficult to imagine a future in which Optum/United offers hospital systems an Optum 360 outsourcing contract that run most of the business operations of a hospital system in exchange for preferred United health plan rates, an AI-enabled EZ pass on its medical claims denials and inpatient referrals from Optum physician groups and urgent care centers, at the expense of competing hospitals.

Managing these potential conflicts will be an increasing challenge as these various businesses grow, placing intense pressure on United’s leadership to get the various pieces of United to work together. To many anxious hospital executives, United resembles nothing so much as the Kraken, rising up out of the sea, surrounding and engulfing them- a powerful friend perhaps or a fearsome foe. As you might expect, United’s growing market power and growth has generated a fierce backlash in the hospital management community.

What Business is United Healthcare In?

United Healthcare is the most successful business in the history of American healthcare. The rapid growth of Optum and continued health insurance enrollment growth from government programs like Medicaid and Medicare has created a cash engine which generates nearly $2 billion a month in free cash flow. Optum’s portfolio has given United an impressive array of tools, unequalled in the industry, to improve its profitability and to reach into every corner of the US health system. United Healthcare is managed care on steroids.

United’s diversified portfolio of businesses gives the firm what a finance-savvy colleague termed “optionality”- the ability to redirect capital and management attention to areas of growth and away from areas that have ceased to grow, in the US or overseas. With its substantial investable capital, it will have the pick of the litter of the 11 thousand digital health companies as the overextended digital health market consolidates. United will be able to use its vast resources to build state-of-the-art digital infrastructure to reach and retain patients and manage their care.

United’s main short term business risks seem to be running out of accretive transactions effectively to deploy its growing horde of capital and managing the firm’s rising political exposure. United has had tremendous business discipline and has shied away from speculative acquisitions that are not immediately accretive to earnings. If its earnings growth falters, however, it will also encounter pressure from the investment community to increase dividends (presently about 1.2%) or share buybacks to bolster its share price, or else divest some or all of Optum in order to “maximize shareholder value”.

Answering the question, “What Business is United In” is simple: just about everything in health but hospitals and nursing homes.

Answering the questions- who are its customers and what do they want? — is a great deal harder. The customers United serves are in a sort of cold war with one another. United’s original business was protecting employers from health cost growth , and tempering the influence of hospitals and doctors by reducing their rates and utilization. By fostering so-called Consumer Directed Health Plans that expose many of their subscribers to very high front-end copayments, United and its health insurance brethren, have also increased their out-of-pocket costs, whether they have the savings to pay them or not.

There are also some ironies in United’s development. Optum Insight’s suite of hospital business services are designed to reduce administrative costs created in major part by United and other insurers’ medical claims data requirements. Its PBM business, originally intended to reduce drug spending by bargaining aggressively with pharmaceutical manufacturers has ended up pushing up drug list prices and consumer cost shares.

While presumably everybody benefits if United can somehow help patients become and remain healthy, it is still far from obvious how to do this. Managing all these markedly divergent customer needs will be a tremendous management challenge for whoever succeeds United’s reclusive (and very effective) 70 year old Chairman Stephen Hemsley.

What Does Society Get from this Vast Enterprise?

However, as Peter Drucker told a different generation of business giants, businesses are not entities unto themselves, accountable only to shareholders and customers. They are organs of society, and are expected to create social value. Americans are suspicious of vast enterprises, as businesses from Standard Oil, US Steel and ATT to Microsoft and Facebook have learned. As businesses grow and become more successful, public suspicion grows.

Private health insurers already face strident opposition from progressive Democrats, who believe that health coverage ought to be a public good, a right of citizenship provided publicly; in other words, that private health insurers have no business being in business. And large insurers like United also face intense opposition from hospitals and many physicians because they reduce their incomes and impose major administrative burdens upon them.

In the age of Twitter and TikTok, United is highly vulnerable to “event risks” that confirm the hostile narratives of the firm’s detractors that United is mainly about maximizing its own profits, not about improving the health of its subscribers or the communities it serves. It is not clear how many the tens of millions of United subscribers have warm and fuzzy feelings about their giant health insurer. Memories of the HMO backlash of the 1990’s reside in the firm’s corporate memory.

United has grown to its present immense scale largely without public knowledge. United has within its reach the capability of constraining overall health cost growth across dozens of metropolitan areas and regions, not merely cost growth for its own beneficiaries (roughly one in seven US citizens already get their health insurance through United). With its expanding digital health operations, it can deploy state of the art tools for helping United’s 50 million subscribers avoid illness and live healthier lives.

United also has the ability to damage the financial operations of beloved local hospitals and deny coverage to families, raising their out of pocket expenses. How United frames and defends its social mission and how it manages all the delicate and increasingly fraught customer relationships will determine its future, and in important ways, ours as well.

View at Medium.com

Kaiser+Geisinger: Our take on the formation of Risant Health

Posted on by • Posted in Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Kaiser Permanente, Market Consolidation, Market Trends, Mergers & Acquisitions, Value Based Care Model, Value-Based Healthcare • Leave a comment
https://www.advisory.com/daily-briefing/2023/04/27/kaiser-geisinger?utm_source=member_db&utm_medium=email&utm_campaign=2023apr27&utm_content=member_headline_final_x_x_x_x&elq_cid=4838956&x_id=0033b00002owB9sAAE

Kaiser Permanente  on Wednesday announced it is acquiring Geisinger Health, and Geisinger will operate independently under a new subsidiary of Kaiser called  Risant Health.

Deal details

The combination of the two companies will need to be reviewed by federal and state agencies, but if approved, the two companies will have more than $100 billion in combined annual revenue.

Geisinger will operate independently as part of Risant Health, which will be headquartered in Washington, D.C. and will be led by Geisinger president and CEO Jaewon Ryu. The health systems said they intend to acquire four or five more hospital systems to fold into Risant in an effort to reach $30 billion to $35 billion in total revenue over the next five years.

In an interview, Ryu and Kaiser chair and CEO Greg Adams said Risant will specifically target hospital systems already working to move into value-based care.

According to Adams, Risant Health “is a way to really ensure that not-for-profit, value-based community health is not only alive but is thriving in this country.”

“If we can take much of what is in our value-based care platform and extend that to these leading community health systems, then we extend our mission,” Adams said. “We reach more people, we drive greater affordability for health care in this country.”

Why we’re ‘cautiously optimistic’ about this acquisition 

Just when you thought healthcare couldn’t get more interesting, Kaiser and Geisinger announce their union through newly established Risant Health. At first pass, it is hard to see a downside with this deal — and that’s something that raises my “spidey-senses.”

Kaiser and Geisinger are coming together through a vehicle that could allow them to clear an increasingly skeptical  Federal Trade Commission. It affords two health systems — both in comparatively weaker financial positions than before the pandemic — the ability to get bigger through the merger. Its pitch is decidedly hospital- (and in the future provider) led, with Geisinger retaining its brand and elevating its CEO to the head of Risant. It also gives Geisinger and future partners the latitude to pursue their own payer relationships.

In addition, it is ostensibly a play to increase providers’ control over the nature and pace of value-based care (VBC) adoption. In its press release, Kaiser acknowledges that its closed network model of care management hasn’t scaled well to other markets. And Geisinger, with its own health plan and a track-record of developing its own VBC incentives, is no neophyte and brings a clear wealth of expertise.

Without a doubt, the offer to future partners is compelling: “Come for the size and stay for the value-based care.” But like all things in life, it’s all in the details. And that’s where my “spidey-sense” kicks in.

Partnership and affiliation models alone do not make the hard work of VBC easier. While this emerging group could become a valuable, provider-led clearing house for VBC concepts, applying them in communities remains a stubborn challenge that requires individual work and leadership.

The true test of the concept will come when the first new partner joins. How they decide to participate and whether the model has the right mix of scale and flexibility is what I’ll be watching closely. The overall objective and success measure of this endeavor remains somewhat opaque, but I would say that the concept has real legs here. Right now, I’m leaning toward “cautiously optimistic.”

National ASC chains look to dominate growing market

Posted on by • Posted in Ambulatory Surgery Centers (ASC), Competition, For-Profit, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Market Trends, Operating Margin, Operating Performance, Operating Revenue, Private Equity • Leave a comment

https://mailchi.mp/73102bc1514d/the-weekly-gist-may-19-2023?e=d1e747d2d8

As care continues to shift to lower cost ambulatory surgery centers (ASCs), the graphic above looks at recent growth and consolidation in the ASC market. 

From 2012 to 2022, the five largest operators increased their collective ownership of ASC facilities from 17 to 21 percent, and were responsible for over 50 percent of total facility growth in that period. 

While physicians still fully own over half of the nation’s ASCs, the national chains tend to run larger, multispecialty facilities responsible for an outsized proportion of procedures and revenue. 

The likes of Tenet, Optum, and HCA are betting big on ASCs, banking on projections that the market will grow by over 60 percent in the next seven years. 

(Though AmSurg’s parent company, Envision Healthcare, filed for bankruptcy, AmSurg is buying Envision’s remaining ASCs to retain its significant foothold in the market.)

While many high-revenue specialties, notably orthopedics and gastroenterology, have already seen a significant shift to ASCs, cardiology is one of the most promising service lines for ASC growth, with some predicting that a third of cardiology procedures will be performed in ambulatory settings in the next few years. 

The shift of surgeries from hospitals to ASCs is daunting for health systems, who stand to lose half or more of the revenue from each case—if they’re able keep the procedure within the system. 

In the meantime, low-cost ASC operators will continue to add new facilities that deliver high margins to fuel their growth.

The imperative to “parallel process” mergers and integration

Posted on by • Posted in Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Post Merger Integration • Leave a comment

https://mailchi.mp/55e7cecb9d73/the-weekly-gist-may-12-2023?e=d1e747d2d8

Given the somewhat frantic pace at which transactions are happening in healthcare these days, with insurers buying up primary care assets, private equity firms rolling up specialty practices, hospital systems looking to consolidate, and everyone circling around digital players, it’s little surprise that we’ve begun to hear some angst among health system executives about their ability to keep pace.

“Some of these disruptors are focused entirely on M&A strategies,” one CEO told us recently. “My team still has to run a complex health system at the same time. It takes us forever to get deals done.”

The concern is legitimate: for many health systems, M&A has been a one-at-a-time proposition. Evaluating and completing an acquisition takes many months, if not a year or more—and the integration of even a relatively small entity into a larger health system often takes longer. 
 
There is a growing sentiment that the pace of single, sequential mergers and acquisitions will not allow health systems to keep pace. 

One CFO shared, “We did a large merger a decade ago, and we’re just at the point of feeling like we act as a single system. We’re looking at one or two others, and we can’t delay the next opportunity because we’re still working to integrate the last.”

His strategy: systems aiming to build a super-regional organization should “rapidly build the network and integrate it once you have all the pieces”. It’s a strategy, he said, that is serving vertically integrated payers like CVS and UHG well. To keep pace in a consolidating market, health systems must maintain a pipeline of potential partners that fit with their vision. But we’re also wary of “saving” all the integration until the deals are done.

Rather, health systems looking to rapidly expand must be able to “parallel process” multiple acquisitions and integration. With smaller financial reserves compared to payer behemoths, health systems need mergers to generate value more quickly. And moreover, as providers are held to a higher standard by regulators, new partnerships will benefit from demonstrating value to consumers and communities.  

USA Health has Signed an Agreement to Acquire Providence Health System from Ascension

Posted on by • Posted in Health System, Hospital, Hospital Industry, Market Consolidation, Mergers & Acquisitions • Leave a comment

The University of South Alabama Health Care Authority has announced plans to acquire Providence Health System from St. Louis-based Ascension. The transaction is subject to routine regulatory approval as well as customary closing conditions and is expected to close in the fall of 2023.   

About the Transaction


USA Health engaged Cain Brothers, a division of KeyBanc Capital Markets, to serve as their strategic financial advisor based on its deep academic medicine and health system sector knowledge. USA Health and Providence have a longstanding relationship and the transaction will help the organizations enhance access to high quality healthcare in the Mobile community and further USA Health’s ability to fulfill its tripartite mission of education, research, and clinical care. The transaction expands USA Health’s footprint in the greater Mobile market, ensuring that the community has access to sustainable, quality healthcare long into the future.

About USA Health

USA Health is located in Mobile, AL, and stands as the only academic health system along the upper Gulf Coast. The system is comprised of nearly 30 care delivery locations, including USA Health University Hospital, the USA Health Mitchell Cancer Institute, USA Health Children’s & Women’s Hospital, a Level I trauma center, a comprehensive stroke center, and a Level III NICU. USA Health employs 3,900 clinical and nonclinical staff members, including 180 academic physicians who serve dual roles treating patients and teaching the next generation of medical doctors.


About Providence Health System


Mobile, AL-based Providence Hospital, which was founded in 1854 by the Daughters of Charity, is a full-service 349 bed hospital with 24/7 emergency care, a Level III trauma center, an outpatient diagnostic center, and a freestanding rehabilitation and wellness center. In addition to the hospital, Providence operates related sites of care throughout the greater Mobile community, including the physician practices of Ascension Medical Group. Providence became part of Ascension in 1999 when the Daughters of Charity and Sisters of St. Joseph Health System merged to form Ascension.

About Ascension


Ascension is one of the nation’s leading not-for-profit and Catholic health systems, with a mission of delivering compassionate, personalized care to all with special attention to persons living in poverty and those most vulnerable. Ascension includes approximately 37,000 aligned providers and operates more than 2,600 sites of care – including 138 hospitals in 19 states.

15 healthcare mergers and acquisitions making headlines in April

Posted on by • Posted in Health System, Hospital, Hospital Industry, Market Consolidation, Mergers & Acquisitions • Leave a comment
https://www.beckershospitalreview.com/hospital-transactions-and-valuation/15-healthcare-mergers-and-acquisitions-making-headlines-in-april.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Here are 15 major hospital and healthcare merger and acquisition-related transactions from April:

  1. Brentwood, Tenn.-based Quorum Health is selling Waukegan, Ill.-based Vista Medical Center East to American Healthcare Systems, the Lake County News-Sun reported April 28. The hospital will change hands by May 31. American Healthcare Systems is based in Los Angeles.
  2. West Virginia will soon likely see a combined four-hospital system as Huntington-based Mountain Health Network, Marshall Health and Marshall University seek to combine. The combination should be completed by the end of this year.
  3. Yale New Haven (Conn.) Health continues to push for the acquisition of three hospitals owned by private equity-backed Prospect Medical Holdings. The system made its case to the state’s certificate of need committee as to why it is better placed to acquire the three sites.
  4. Oakland, Calif.-based Kaiser Permanente agreed to acquire Geisinger Health in a deal that will make the Danville, Pa.-based health system the first to join Risant Health, a new nonprofit organization created by the Kaiser Foundation Hospitals. The newly formed entity, which still has to be approved by regulators, would eventually look to acquire four to six other systems.
  5. Mobile, Ala.-based University of South Alabama confirmed April 19 it is buying Ascension Providence Hospital in the city in an $85 million transaction that includes the hospital’s clinics.
  6. The Oregon Health Authority on April 13 approved Roseville, Calif.-based Adventist Health‘s acquisition of the Mid-Columbia Medical Center in The Dalles, Ore., according to the Columbia Community Connection.
  7. Lumberton, N.C.-based UNC Health Southeastern is transitioning two of its business areas, seeking to sell a long-term care facility and transferring its current outpatient hospice program.
  8. Salt Lake City-based Intermountain Health is partnering with two Idaho hospitals as a minority investor. The 33-hospital system is investing in Idaho Falls Community Hospital and 43-bed Mountain View Hospital, also based in Idaho Falls.
  9. Two Wisconsin health systems — Froedtert Health and ThedaCare — signed a letter of intent to merge into a single system. Milwaukee-based Froedtert and Neenah-based ThedaCare announced the plan to combine April 11 with the goal to close the deal by the end of the year.
  10. Franklin, Tenn.-based Community Health Systems has struck agreements to sell four hospitals across three states in 2023.
  11. Mechanicsburg, Pa.-based Select Medical has acquired Vibra Hospital of Richmond, a 63-bed acute care facility in Richmond, Va. Terms were not disclosed. The hospital, which will take up the name Select Specialty Hospital-Richmond, will continue to provide post-ICU medical care for chronic and critically ill patients requiring long-term care, according to an April 5 release.
  12. Carle Health has added three Peoria, Ill.-based UnityPoint Health-Central Illinois hospitals into its system. The closing, which took place April 1, integrates Methodist, Proctor and Pekin hospitals under Carle, along with 76 clinics and Methodist College, according to an April 3 news release from Carle Health. Urbana, Ill.-based Carle Health now has eight hospitals in its system following the deal’s closing.
  13. Ann Arbor-based University of Michigan Health acquired Lansing, Mich.-based Sparrow Health System to become a $7 billion health system with more than 200 sites of care.
  14. Franklin, Tenn.-based Community Health Systems completed a $92 million sale of Oak Hill, W.Va.-based Plateau Medical Center to Charleston, W.Va.-based Vandalia Health. The healthcare giant closed on the transaction April 1.
  15. South Arkansas Regional Hospital signed a definitive agreement to acquire El Dorado-based Medical Center of South Arkansas from subsidiaries of Community Health Systems. The deal is expected to close in the summer.

Kaiser Permanente to acquire Geisinger, form company to operate other nonprofit systems

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https://www.healthcaredive.com/news/kaiser-permanente-acquire-geisinger-form-risant-health/648710/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202023-04-26%20Breaking%20News:%20Healthcare%20%5Bissue:49989%5D&utm_term=Healthcare%20Dive

Dive Brief:

  • Kaiser Permanente is acquiring Geisinger Health and forming a new nonprofit to buy and operate other value-oriented nonprofit systems, the organizations announced Wednesday.
  • The new nonprofit, Risant Health, will operate separately from Kaiser Permanente. Geisinger will become part of Risant but maintain its own name and mission, according to a press release.
  • Geisinger president and CEO Jaewon Ryu will be CEO of Risant as the transaction closes, subject to regulatory review. Risant will have its headquarters in Washington, D.C..

Dive Insight:

Risant represents an opportunity for Kaiser, which currently operates in eight states and Washington, D.C., to expand its reach nationwide through targeted acquisitions of nonprofit community health systems, as smaller hospitals continue to struggle in a difficult operating environment.

About half of all U.S. hospitals finished last year with negative margins, according to consultancy Kaufman Hall.

Kaiser, which reported $95 billion in revenue in 2022, plans to spend $5 billion on Risant over the next five years, and add five or six health systems to Risant over that period, according to reports.

Kaufman Hall said recently it expects a “new wave of transaction activity” and a growing number of cross-regional partnerships.

Pennsylvania-based Geisinger has 10 hospital campuses and a health plan that covers more than 500,000 members. It has more than 25,000 employees. Both Geisinger and Kaiser reported operating losses last year, as supply and labor expenses rose.

Kaiser in 2022 posted a $4.5 billion net loss, compared to a prior-year gain of $8.1 billion.

Federal and state regulators still need to approve the deal, the financial terms of which were not disclosed. It’s likely to face a high bar for approval as regulators more aggressively scrutinize hospital mergers.

‘The false choice of sitting back’: A conversation with Bill Gassen and James Hereford

Posted on by • Posted in Antitrust, CEO, Complex Care, Cost Management, False Choices, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Innovation, Integrated Delivery System, Leadership, Leadership Alignment, Market Consolidation, Market Power, Mergers & Acquisitions, Payvider, Scale, Strategy • Leave a comment
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Welcome to the “Lessons from the C-suite” series, featuring Advisory Board President Eric Larsen’s conversations with the most influential leaders in healthcare.

In this edition, Bill Gassen, President and CEO of Sanford Health and James Hereford, President and CEO of Fairview Health Services talk with Eric about the planned merger that will create the 11th largest health system in the United States that would span North Dakota, South Dakota, Iowa, and Minnesota.

The two CEOs describe the urgency and intent behind the merger, why not all disruptors are equally disruptive, and why it takes more than size to harness scale in healthcare.

Question: Bill and James, let’s jump right in. The two of you are architecting one of the most significant health system mergers of 2023 — a combination of Sanford Health and Fairview, which on its completion, will result in the 11th largest health system in the US. The discussions have attracted, understandably, a lot of interest and scrutiny not just in each of your communities, but nationally. Some may not be aware, but this is not the first time that Sanford and Fairview have considered coming together. Bill, let’s start with you – why is this time different?

Gassen: Eric, you’re right. This is not the only time our two organizations have considered the idea of merging. James and I, and our respective boards and organizations, have examined every element of the union and are confident that this is the right time to proceed. We have executed a Letter of Intent (LOI) and submitted an HSR filing that has been reviewed by the Federal Trade Commission (FTC). The parties provided substantial amounts of information to the FTC and the HSR process and it is now complete. There is an unwavering commitment from our respective leaders and our organizations to see this through.

It is a false choice for anyone to believe that James or I or anybody else has the benefit of sitting back and saying, well, maybe I’ll just maintain the world that I live in today. The healthcare status quo is gone. What is in front of us is taking the steps needed to ensure that we can continue to provide the best possible service for our patients, employees, and communities. Taking control over our destiny. We want to come together in a merger between our two organizations to put us in a position to fundamentally change and to be an agent for the modernization of the way care is delivered into the future. Our organizations exist only to serve patients, employees, and our communities. That is not up for debate. What we have in front of us is a decision to make that better for generations to come.

Hereford: I think Bill articulated that very well. Our purpose is to combine to improve and sustain our ability to offer world class healthcare. It is not simply a function of scale, you have to combine that with an intent to drive change, to improve value, and to innovate. And that’s a rare thing to have that intent. We have that intent today.

Avoiding the ‘Noah’s Ark’ problem

Q: Let’s go a bit deeper into the horizontal consolidation among health systems. This isn’t a new phenomenon — in fact, our $1.4 trillion hospital sector is already massively consolidated, with the top 100 systems controlling almost $900 billion in revenue. But with this degree of concentration, a lot of disillusionment: we just haven’t seen compelling or provable quality improvements, let alone the scale of cost reductions projected. Some of this might be what I call the “Noah’s Ark” problem—two of everything (two CEOs, two headquarters, two EHRs, etc.) … in other words, very little rationalization of back-office infrastructure or staffing.

I think about the proposed Sanford-Fairview merger differently. I might even characterize it as more a “vertical” merger, instead of “horizontal” — a combination of different and complementary capabilities instead of overlapping or competing ones — including Sanford’s proprietary health plan and virtual hospital investments, bringing Fairview’s specialty pharmacy and post-acute companies into the combination — for example. Am I thinking about this the right way?

Gassen: I think your characterization is right, Eric. We are different but very complementary organizations. We are contiguous as it relates to geography, but there is no overlap. We serve distinctly different populations in a similar part of the country. Roughly two-thirds of the patients who have been served today at Sanford Health come to us from a rural community. While most of those who Fairview serves come from much more densely populated urban communities. Both of those subsets of our population are experiencing similar challenges. There’s a need for financial sustainability, both on the provider side as well as on the patient side of the house.

When you think about our service mix, there are a number of complementary areas that make our union additive. Specialty and subspecialty expertise at Fairview coupled with a robust primary care backbone from Sanford plus our Virtual Care initiative and significant philanthropic investment will come together to create powerful healthcare solutions.

The fact that at Sanford alone we have $350 million solely dedicated to, and available for, scaling virtual care is amazing. And when you think about applying that investment to Sanford and Fairview, the opportunities are limitless. We’re going to be able to serve both our rural and urban communities, allowing us to truly transform the way in which healthcare is delivered and experienced in this part of the country.

And for those outside our orbit, they’ll say, “I want to partner with a combined Sanford Fairview” because that is much more attractive. And at the end of the day, partnering with us means that we’re all in a better position to transform the way in which we deliver care, how care is accessed, and how quality is improved. And do it in a financially sustainable way that allows us to deliver equitable care to more people in the upper Midwest.

Hereford: Here’s why scale matters: If you’re one hospital and you drive an innovation that requires a capital of investment of $1 million, that’s an expensive solution. But if you’ve got 100 hospitals, the size of that investment you made on a scale basis is much smaller. Therefore, your ability to drive the needed level of innovation is expanded significantly. To truly improve healthcare delivery, we must challenge ourselves to do things differently, but you have to have a certain level of scale to be able to do that.

Health system transformation must happen now

Q: I want to expand on the earlier point you made that the old health system status quo is forever gone. 2022, for health systems, was something of an Armageddon year — the worst on record with 11 out of 12 months with negative margins; supply chain costs up 17% versus pre-pandemic; health systems collectively spending an extra $125 billion on Labor last year compared to 2021. So not a great “state of the union” for acute-care centric health systems. How does this macroeconomic backdrop factor into your planning?

Hereford: Conceptually, cognitively, I would offer that hospital CEOs probably all know that the good old days are gone. But you don’t see organizations responding as if they’re gone. And we’re on the precipice of a significant cliff. The fundamental things that have defined healthcare and not-for-profit healthcare for decades have fundamentally shifted. We need to change in response.

We’re going to have 80,000 people when we combine. The challenge for us as leaders is going to be how do we shift the mindset and change the way we think about care delivery while maintaining essential services that persist with challenging economics. We are a high capital, low margin business that is critical to society.

Gassen: James, it’s as you and I talk about a lot. We don’t get the benefit of hitting pause, taking a year to revamp the industry because it’s 24 by 7 by 365. There are no breaks.

And while we’re doing that and while we are delivering essential services, the 45,000 incredible caregivers at Sanford and the 35,000 incredible caregivers at Fairview, collectively, are going to figure out how we evolve together as a unified organization to continue to elevate that critical work of patient care. And we don’t get reimbursed for a lot of those services. But those are essential services that people need.

If we want to be able to meet the needs of vulnerable patients and communities, we must face the increased pressure to lower costs and increase scale to drive positive margins. Those areas are few and far between in not-for-profit healthcare delivery. So, it necessitates that we continue to evolve and think differently about the work that we do driving down costs.

Larsen: And that’s increasingly becoming difficult — even for big players. I’ve been writing ruefully about the “billion-dollar club” — preeminent health systems like Ascension, MGB and Cleveland Clinic each posting more than a billion dollars in total losses (and even more in some cases, e.g., $4.5 billion for Kaiser). But Sanford, in contrast, is one of just a small handful of health systems that somehow managed to end 2022 in the black, with a $188 million operating income last year. Bill, any reflections on how you and the team did that?

Gassen: We count ourselves very, very blessed to be among the few who had the opportunity to experience positive margins in 2022. I would give first and foremost credit to an exceptionally talented team inside and outside the organization. They do a wonderful job of focusing their attention on that which matters most, which is patient care.

It’s also a very well-constructed organization from the ground up. We benefit coming into both the pandemic and then through the financial headwinds in 2022 with a well-diversified set of assets and geographies. On the acute side it’s largely contained across Iowa, South Dakota, and North Dakota.

In Minnesota, and across those above geographies, we have a great complement of assets across our provider sponsored health plan, hospitals, clinics, post-acute care, as well as our research enterprise, all of which, collectively, allowed us to do a better job than some of our peers at weathering that “economic storm” you mentioned earlier.

But, most importantly, it’s just the time that we’ve had to mature as an organization. And with that time, we’ve integrated more deeply as one singular operating company. Sanford Health is not a holding company. The decisions that we make, we make as one singular integrated system and that is a part of that special sauce that’s allowed us to be successful.

Everything that I’ve described has just given us a little bit of a head start and now it’s incumbent upon us to maximize that time.

The imagined and real disruption in healthcare

Q: Bill, you mentioned time is of the essence. And so far, we’ve mostly localized our discussion today talking about health system-specific competitive issues, which makes sense. But it also makes sense to lift up and survey the healthcare ecosystem outside of health systems and note the fact that even when Sanford and Fairview combine and represent $14 billion in revenue, it will still be comparatively tiny to some of the non-traditional players seeking to disrupt healthcare. We have trillion-dollar market cap companies like Amazon investing aggressively into the primary care, pharmacy, and home enablement spaces. We have Fortune 10 companies like UnitedHealth Group and CVS-Aetna vertically integrating and building out sophisticated ambulatory delivery systems. And we have retailers like Walmart and Best Buy transitioning into parts of the healthcare delivery chain as well. So, while Sanford-Fairview will be sizable by most conventional healthcare metrics, it has some pretty formidable competition. How do you assess the new competitive landscape emerging?

Hereford: So, I thought a lot about this because I do think it’s one of the most significant aspects of our industry right now. The opportunity for a CVS-Aetna is that they are proximate to a lot of people in the US. And there’s a lot of things that they could do for patients with a simple presentation of acute symptoms or for fairly simple chronic disease and stabilization. But that is not what drives the cost of health care in the US. It’s when people get very sick.

People receiving specialist care in hospitals are having complex procedures. They’re being treated for complex cancers. And we’re doing an amazing job of advancing the science and the technologies that we can apply to that. But that doesn’t happen in a drug store. That does not happen in a store front primary care office. That happens in organizations like ours. Our challenge is to create the same level of convenience, the same level of access, or partner in a smart way to achieve that.

Our job is to think about total cost of care within the context of delivering very complex care. That isn’t simply a function of primary care and that, I think, is our fundamental challenge. We can translate that into real total cost of care savings.

Gassen: For James and me, in our respective roles and responsibilities, this is our incredibly rewarding and incredibly difficult work. Because those other organizations aren’t required to provide care to everyone. They’re not required to provide free care. They’re not required to be able to provide services for which there is no margin. We don’t get to cherry pick.

It’s our responsibility to really be all things from a healthcare delivery perspective to all people, which means that we are always going to be challenged with how we do that in a financially sustainable way. I think it’s the beauty of where we find ourselves as an industry because out of that necessity comes that innovation that we’ve been talking about here because we can’t continue at current course and speed.

Larsen: When we start to talk about giants in healthcare we tend to index on their size and market cap and, as a result, we lump vertically integrating players and technology companies under the same umbrella. I think that’s a mistake. You have focused healthcare payers like CVS Aetna and UHG that are combining their underwriting business (and ownership of the premium dollar) with an ambulatory delivery network, with an emphasis on home and virtual care. To me that’s a very real and consequential development – and very different from what Big Tech is aspiring to do in our space.

Hereford: Eric, I agree.The world is so clearly changing and that is where the market and a number of very large healthcare organizations are betting. I do think that people who see the overall size of the healthcare marketplace and say “we want to be a part of that” but without any clear way of making sustainable margins.

Gassen: In contrast with the large public companies, as a not-profit health care system, it’s a fact of life that we operate on thin margins. But there are a lot of dollars floating around for other players in the healthcare ecosystem. Which to your point, is why people get enticed to enter into the healthcare space. Our goal with the transaction is to remain financially solid, with the resources needed to invest in our communities, while staying true to our non-profit mission.

Larsen: Your comments, Bill, underscore the power of being a ‘payvider’ in healthcare, which of course Sanford is. You’re in rarefied company — only a dozen or so health systems can claim this, and they have one thing in common — a very mature health plan function (average age of 44 years). So Intermountain, Geisinger, Kaiser, Sentara, Sanford and a small handful of others fit this bill.  I presume a major part of the envisioned benefit of the merger is extending Sanford Health plan into Fairview. Can I get you both to comment on that?

Gassen: I certainly agree with you Eric about the importance of being a “payvider.”  And of course, I’d also say there is a scale component to that, too. Today our health plan only has 220,000 covered lives. But it is a very valuable and strategic component of the larger Sanford Health system.

As we come together with Fairview into a combined system, we now have the opportunity to bring the Sanford Health plan and its additional options and opportunities for members to a much larger community. And one that’s backed by a combined system. It offers greater choices for the two million people across North Dakota, South Dakota, and Western Minnesota.

When we do that, it puts us in the best possible position to coordinate care that allows for the best outcomes, and as a consequence, also results in a better financial position for us. And so, when we think ahead to the opportunity to now apply the infrastructure that we’ve built to the greater Twin Cities market and beyond to bring that together with the care delivery assets and expertise of Fairview Health Services, we get really excited about the opportunities we unlock not just for the combined organization, but for importantly, for all the members within that community.

Healthcare’s technology paradox

Q: The above commentary on scaling out to wider geographies and connecting and transforming care brings me to the paradox of digital health. One of the only bright lights to come out of the pandemic was what I would characterize as a “Renaissance moment” in digital health — unprecedented funding ($72 billion globally in 2021 alone) fueling the creation of almost 13,000 digital startups, spanning new diagnostics, therapeutics, clinical/non-clinical workflow, care augmentation, you name it. And while we’re now seeing a rough contraction, with lots of companies starved for capital and struggling to sell into healthcare incumbents, we are going to see some winners and some transformational platforms emerge.

The question is, will healthcare incumbents like health systems be able to take advantage of this?  The data are sobering — it takes an estimated 23 months for a health system to deploy a digital health technology (once it signs a contract). And while technology tends to be deflationary — lowers costs as it augments productivity — that just hasn’t happened in healthcare, as costs inexorably keep going up. How will the combined Sanford-Fairview tackle this? Who wants to go first?

Hereford: Let me start because I want to respond to something you said, Eric. You’re right, technology has been deflationary in other sectors but only since about 1995. In the 1990s many books in that period were asking “why are we investing all this money in technology across all sectors and we’re not seeing productivity improvements?”

But out of that question came reengineering — where companies started to reconfigure processes and workflows as opposed to just applying technologies. Only then did they see the deflationary benefits of greater efficiencies from technologies. So, I think that has a lot to do with how we’ve applied technology. We’ve had federal stimulus to apply technology, but it’s to apply technology for its own sake. Not to challenge how we use technology to make it easier to be a doctor or nurse. How do we use technology to make people more effective and therefore more efficient?

Gassen: I think that change, especially fundamental shifts, and changes to a business won’t happen until you absolutely have to. And that’s human nature.

The challenge ahead of us is to interrogate how we as an industry interact with our patients and ask, “How can we fundamentally tear that down to the studs and rebuild it better and fit for today?”

But I also want to be clear about why we’re here as a health system. Our reality is that there is a patient at the end of every single decision that we make. So, we must be extremely careful about how we look at processes and implement change. We know they’re rarely perfect, but oftentimes we do deliver the best outcome for the patient. Our job is to be able to make the right change without causing harm.

Larsen: Bill, we’ve made the argument together in past conversations that this same creation moment for digital health solutions beautifully aligns to address the conventional disadvantages of American rural medicine: insufficient infrastructure (hospitals, surgery centers, etc.) and a scarcity of clinicians and non-clinicians for the workforce. Digital health holds the promise to turn those deficits into advantages. And, you know, Sanford’s been a pioneer in launching a $350 million virtual hospital. Perhaps you can unpack this.

Gassen: I’d say our work here really has its origins in the unwavering belief that one zip code should not determine the level of care that a person receives. Every patient has the right to access world class care. So, it’s incumbent upon us, those of us who find ourselves in the privileged position to be in leadership in healthcare delivery organizations like Sanford and Fairview, to take the necessary steps to deploy the appropriate resources and to find the right partners to ensure that whether you’re living in the most rural parts of the heartland or an urban center, you get the best quality care possible.

We take great pride in the fact that our organization was built on the belief that we know many of our patients choose to live in rural America. Two-thirds of the patients today at Sanford Health, whom we have the privilege of serving, come to us from rural America.

It’s with that front and center, the Virtual Care initiative at Sanford Health is allowing us the opportunity to deliver world class care. It’s about making certain that through basically all facets of digital transformation, we leverage our resources to extend excellence in primary care, in specialty and subspecialty care, and offer those individuals access to that care close to home.

The vision for us is to ensure that those who choose to live in rural America are not forced to sacrifice access to high quality, dependable care. That’s at the core of both our beliefs and actions.

Larsen: And James, I think you’ve been one of the most progressive CEOs in the industry on thinking about capitalizing on digital health, innovation and partnering with capital allocators. And we talked about a few of them — leading VCs like Thrive or SignalFire who are partnering broadly with health systems — and finding ways to shorten the innovation cycle.

Hereford: It comes back to intent and purpose. Our job is to make sure that everybody can access high quality care and so the opportunity is to really think about the commonalities and leverage that across both rural America, urban communities, suburbs, exurbs, etc. The other thing that I think is often overlooked in your Cambrian explosion is the volume of scientific advancements over the last two decades.

I love the hypothetical of a medical student who learned everything about medicine in 1950 and how fast the volume of clinical knowledge would have doubled then. They would have had about 50 years before the knowledge base doubled. Today, an amazing medical student with the ambition to learn the entire body of clinical knowledge would have about seven months to see it doubled. That’s how fast medicine is advancing.

We built this industry based on highly specialized, incredibly smart, incredibly committed people who can master these topics. This volume of information on clinical care theory, the body of knowledge on clinical application, all layered on to how the business of care works is cognitive overload. We have got to give them better tools. We have got to help support them. I think we’re in a unique place to be able to really do something about it and create real solutions for people.

Gassen: Where we’re at right now necessitates that. And again, thinking a level deeper as it relates to rural America, the opportunity is so incredibly ripe because it’s necessary. The only way that we’re going to be able to scale to the level we need is to leverage and maximize technology. And so therein creates that opportunity and that necessity makes us a very fertile ground for organizations to come in and partner with us, to be able to extend those services.

The current deal’s state of play

Q: So, we started our conversation about the merger and went broad to talk about industry trends and the wider landscape. But I do want to circle back to a couple of the outstanding specifics of the merger. Sanford and Fairview are merging. What will the University of Minnesota’s relationship be with the merged organization?

Gassen: Both James and I firmly believe, and have articulated in our conversation with you today, the virtues of bringing Sanford Health and Fairview Health services together are absolutely essential to ensuring the delivery of world class healthcare in the upper Midwest. And we are committed to creating the right relationship with the University of Minnesota for it to pursue its mission.

Hereford: We’ve always said that we wanted the University to be part of what we’re building. And, the University of Minnesota has indicated their desire to purchase the academic assets of the system and we stand ready to engage with them to support that. If that is the path that they pursue and can get state funding to support, then we can work with them to determine the nature of the relationship between the new system and the University of Minnesota.

Larsen: And how about the other partners and players in the landscape? I’m thinking of the Minnesota Attorney General, the FTC, etc.

Gassen: We’ve engaged the elected officials across the states of North Dakota, South Dakota, and Minnesota, and we’ve continued to keep them apprised. We’ve also worked very closely with regulators and are happy to report that following its review, the Federal Trade Commission cleared the transaction and the HSR process is complete.

At this point in time, we are working closely with Attorney General Keith Ellison’s office in the state of Minnesota to ensure that he has sufficient information to complete his analysis under antitrust and charities laws to ensure that he’s continuing to protect the interests of all Minnesotans. We remain very engaged and look forward to the conclusion of that work.

The future focus of leadership

Q: Ok, I’d like to round out this conversation with a look to the future. Can you foreshadow your division of labor…where you will be converging and where will you be dividing and conquering as CEOs?

Hereford: One of the great positives of this deal and one of the great signals of the quality of the rationale here is that Bill and I went into this with the question: How do we set this up to be successful over the long term?

You may have noticed Bill and I are different ages. Bill has a lot more runway than I have, so it was not a difficult decision on my part to say “look, it’s important for me to help with the transition because it’s a big deal, right? And it’s not going to be over in a year.” But I can be that bridging function to help support the transition. This is a long-term play and Bill’s the person who’s going to be able to be in the seat to really see that through.

And given my interests I can take on the innovation that we’re talking about and how we make the membrane of this organization a little more permeable and a little bit more friendly to partners, while also being very demanding of partners in terms of the value they create, and we create within the system.

I’m really excited about the opportunity to do that. I do think the way that we have approached this is a very enlightened approach.

Gassen: Standing on the shoulders of James’ comments, one of the many aspects that makes this merger unique is the collegiality and foresight from our respective boards that see how incredibly valuable it is to be able to have co-CEOs working together, focusing first and foremost on ensuring that we’re bringing together the two organizations as one integrated, transformative healthcare delivery organization. I think James and I get up every morning with the goal of making sure that that happens every single day.

And it’s not just that James will work on the innovation piece because it brings him joy and energy but also, it’s where he has a deep level of experience and expertise. I get to focus more of my time and energy on the day-to-day of the two organizations coming together.

Together, James and I will be able to jointly balance the combination of the two organizations with day-to-day delivery and the transformative opportunities for us because of the unique nature of our backgrounds and expertise.

Hereford: And I think that’s a real advantage for the organization. I’m sure there are going be times when I’ll say “Bill, we’ve got to change. You’ve got to do this”. And he’s going to say “yeah, but I can’t do that. I can’t make that kind of change.”

But that’s the kind of dialogue that this structure sets up for us to hold that tension productively as opposed to responding to the tyranny of the urgent, which is ever present in a large health care delivery system. Transformation of care delivery systems will require the ability to manage those competing dynamics. I really appreciate both the structure but also how Bill is approaching this.

Gassen: I do think that what we just described here will prove to be one of the finer distinguishing factors that allows us to really be successful. Because you do oftentimes find yourself with a choice between A or B. And for us we get to choose C — “all of the above” — and go forward and do that. 

UnitedHealth Group (UHG) quietly acquired Crystal Run Healthcare

Posted on by • Posted in Accountable Care Organization (ACO), Antitrust, Federal Trade Commission (FTC), Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Physician Acquisition, Physician Aggregator, Physician Arms Race, UnitedHealth Group • Leave a comment

https://mailchi.mp/5e9ec8ef967c/the-weekly-gist-april-14-2023?e=d1e747d2d8

 In late February, Crystal Run Healthcare, a Middletown, NY-based physician group with nearly 400 providers, became part of UHG’s Optum division. 

A local paper broke the news after obtaining an email from Crystal Run’s CEO, as neither company issued a press release, though UHG has since confirmed the acquisition. In addition to pandemic-related financial difficulties, Crystal Run recently shuttered its health plan after large losses, and its Medicare accountable care organization failed to earn savings in 2021.

Crystal Run expands Optum’s footprint in the Hudson Valley region north of New York City, following the acquisition of Mount Kisco, NY-based Caremount Medical in 2022. The company’s broader New York metro area footprint includes Connecticut-based ProHEALTH and New Jersey-based Riverside Medical Group, the three of which Optum has since integrated into a single tri-state medical group. 

The Gist: Optum continues to secure its place as the country’s largest aggregator of physicians, now employing or aligning with over 70,000 doctors nationwide. 

Not only does every new deal by UHG bolster its vertical integration strategy, but they also shine a light on gaps in federal antitrust regulations. UHG must only disclose deals that comprise a “significant” portion of its business, a threshold that excludes physician groups as large as Crystal Run—making it difficult to fully examine transactions that are subscale according to regulations, but may be significant for healthcare delivery in a local market. 

Some state governments, including New York, are exploring ways to increase state antitrust scrutiny of provider acquisitions. But in multi-state markets where only the federal government has the authority for full oversight, UHG’s acquisition strategies are proving difficult to even monitor, much less intervene.

Froedtert Health and ThedaCare announce intent to merge

Posted on by • Posted in Antitrust, Competition, Health System, Horizontal Consolidation, Horizontal Integration, Horizontal Merger, Horizontal Mergers, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions • Leave a comment

https://mailchi.mp/5e9ec8ef967c/the-weekly-gist-april-14-2023?e=d1e747d2d8

On Tuesday, Milwaukee, WI-based Froedtert Health and Neenah, WI-based ThedaCare shared they have signed a letter of intent to form a $5B, 18-hospital system. 

The merger would unite Froedtert’s southeast Wisconsin service area with ThedaCare’s northeast and central Wisconsin footprint, linking tertiary care patients in ThedaCare’s high-growth service areas in the Fox Valley to Froedtert’s Medical College of Wisconsin in Milwaukee. As the systems serve non-overlapping markets, the merger is not expected to receive challenge from federal regulators. 

The Gist: These two systems have partnered previously, striking a joint venture last fall to build two health campuses with micro-hospitals, which likely served as the operational test case for merger plans already in the works. 

The pace of consolidation has quickened in the Badger State, with Gundersen Health System and Bellin Health completing a merger last fall to form an 11-hospital system. 

While interstate mega-mergers have defined recent health system M&A trends, these types of regional mergers, which bring together systems in adjacent but non-overlapping markets, could serve to bolster the combined system’s value proposition as a partner to employers and other healthcare entities in the state and beyond.