Two lawsuits against hospital mergers announced the same day may look like the FTC under Chair Lina Khan (pictured) is flexing its muscle to restrain deals that raise prices. But those complaints are “more smoke than fire,” Ken Field, a former FTC lawyer and current co-chair of Jones Day’s global health care practice, told STAT’s Tara Bannow.
The real target shouldn’t be the mergers in Utah and New Jersey between hospitals, antitrust experts said, but something called vertical mergers, in which hospitals buy up physician groups. After such deals, doctors spent $73 million more on 10 common imaging and lab tests over four years, a 2021 Health Affairs study found.
An FTC spokesperson didn’t comment on the agency’s strategy with respect to hospital consolidation.
While healthcare is delivered locally, the business of healthcare is regional, and the regions are only getting bigger. Hospital and health system mergers alike have continued to shift from local to regional, and the recently announced merger between Advocate Aurora Health and Atrium Health clearly highlights that the regions are only getting bigger.
Advocate Aurora, with a presence in Illinois and Wisconsin, and Atrium Health, with a presence in North Carolina, South Carolina, Georgia, and Alabama, will combine to create a $27 billion health system that will span six states and make it one of the leading healthcare delivery systems in the country. The combined organization, which will transition to a new brand, Advocate Health, will operate 67 hospitals and over 1,000 sites of care, employ nearly 150,000 teammates, and serve 5.5 million patients. Together, Advocate Health will become the 6th largest system in the country behind Kaiser Permanente, HCA Healthcare, CommonSpirit Health, Ascension, and Providence.
We have seen a number of large health systems come together recently, including Intermountain Healthcare + SCL Health to create a $15 billion revenue system, Spectrum Health + Beaumont ($14 billion), NorthShore University Health System + Edward-Elmhurst Healthcare ($5 billion), LifePoint Health + Kindred Healthcare ($14 billion), and Jefferson Health + Einstein Healthcare Network ($8 billion).
The exact reasoning for each merger differs slightly, but one of the common threads across all is scale. But not scale in the traditional M&A sense. Rather, scale in covered lives; scale in physician infrastructure and alignment; scale in clinical and operational capabilities; scale in technology, innovation, and partnerships with non-traditional players; scale for capital access; and scale for insurance risk to compete in a value-based world. It is no longer the strong acquiring the weak. Rather, strong players are coming together to gain scale to face the headwinds in a unified manner.
For Advocate Aurora and Atrium, coming together is about leveraging their combined clinical excellence, advancing data analytics capabilities and digital consumer infrastructure, improving affordability, driving health equity, creating a next-generation workforce, research, and environmental sustainability. Together, they have pledged $2 billion to disrupt the root causes of health inequities across underserved communities and create more than 20,000 new jobs.
Both Advocate Aurora and Atrium are no strangers to mergers. Advocate and Aurora came together in 2018, and prior to that Advocate was intending to merge with NorthShore before being blocked due to anti-trust. Atrium has grown over the years, merging with systems such as Navicent Health in Georgia in 2018, Wake Forest Baptist Health in North Carolina 2020, and Floyd Health System in Georgia in 2021. In the newly proposed merger, Advocate Aurora and Atrium are coming together via a joint operating arrangement where each entity will be responsible for their own liabilities and maintain ownership of their respective assets but operate together under the new parent entity and board. This may allow the combined entity more flexibility in local decision-making. The current CEOs, Jim Skogsbergh and Eugene Woods will serve as co-CEOs for the first 18 months, at which point Skogsbergh will retire, and Woods will take over as the sole CEO.
Mergers can come in various shapes and structures, but the driving forces behind consolidation are not unique. With the need to compete in value-based care, adequately manage risk, gain scale across covered lives, physicians, and points of access, successfully deliver affordable high-quality care, and the need to deal with the vertical and horizontal consolidation of the large-scale payers, the markets that health systems operate in must be large enough to be effective and relevant. We fully expect to see more of these larger scale health system mergers in the near term.
The physical delivery of healthcare is local, but, again, the business of healthcare is not; it is regional, and the regions are only getting bigger.
Six health system and hospital deals have been canceled so far this year, whether it be a scrapped merger or acquisition or the unwinding of a partnership.
1. Proposed Dartmouth Health, GraniteOne Health merger canceled Lebanon, N.H.-based Dartmouth Health and Manchester, N.H.-based GraniteOne Health are canceling their proposed merger after the state Attorney General’s Office said the move would violate the New Hampshire constitution, according to VTDigger.
2. Hackensack Meridian, Englewood withdraw merger plans Edison, N.J.-based Hackensack Meridian Health and Englewood (N.J.) Health have dropped their merger plans, a spokesperson for Hackensack Meridian told Becker’s.
4. Lifespan, Care New England withdraw merger application The boards of Lifespan and Care New England — both based in Providence, R.I. — have decided to withdraw their merger application after the Federal Trade Commission made an announcement Feb. 17 it would file suit to block the deal.
5. Hoag, Providence to split: 5 things to know Hoag Memorial Hospital Presbyterian in Newport Beach, Calif., and Providence, a Catholic health system based in Renton, Wash., said they would end their affiliation in January.
6. Trinity Health won’t buy Tower Health hospital Trinity Health Mid-Atlantic has abandoned its plan to buy Tower Health’s Chestnut Hill Hospital in Philadelphia, according to the Philadelphia Inquirer.
RWJBarnabas Health (RWJBH) and Saint Peter’s Healthcare System’s proposed integration has received the blessing of New Jersey regulators, a key step forward as the systems look to form what they describe as the state’s “first premier academic medical center,” according to a Monday announcement.
The organizations are now awaiting a final approval from the Federal Trade Commission (FTC) before moving ahead with the deal.
“State approval now puts us on the cusp of being able to create New Jersey’s first multi-campus premier academic medical center that will draw top talent, increased research funding and more opportunities for groundbreaking clinical trials, while also enhancing specialized services and improving overall patient care,” Saint Peter’s President and CEO Leslie Hirsch said in a statement.
“New Jersey deserves to have a premier academic medical center of national distinction like many other states that will serve as a destination for patients from all walks of life to get lifesaving treatment for complex illnesses and as an anchor for medical innovation, educational opportunity and economic development,” Hirsch said.
The organizations said that in addition to increasing services and strengthening patient access, the premier academic medical center’s location in New Brunswick, New Jersey, would play a role in attracting more academic talent and research to nearby Rutgers University.
The systems’ announcement also cited affirmation from Superior Court Judge Lisa Vignuolo, who said when authorizing the transaction that the deal “will serve in the public interest and the public good.”
RWJBH is the larger of the pair, providing care to more than 3 million patients annually across 11 hospitals, four children’s hospitals and dozens of other centers. It’s already the largest academic health system in New Jersey thanks to a collaboration with Rutgers Robert Wood Johnson Medical Schools to train over 1,000 medical residents and interns across RWJBH hospitals yearly.
Formed in 2007, Saint Peter’s Healthcare System is a Catholic organization headlined by the 478-bed Saint Peter’s University Hospital in New Brunswick. It also operates a children’s hospital, primary and specialty care networks and a surgical center.
Under the previously announced terms of the agreement, Saint Peter’s would remain a full-service acute healthcare provider in New Jersey and continue to adhere to its Catholic healthcare mission. RWJBH would make significant strategic capital investments in St. Peter’s facilities, technology and innovation.
“This is a tremendous milestone in a years-long journey towards fulfilling our shared vision to bring transformative care to New Jersey,” RWJBH CEO Barry Ostrowsky said in a statement.
Regulators’ green light for RWJBH’s moves contrasts with the recent opposition to Hackensack Meridian Health and Englewood Health’s now-nixed merger plans. The FTC and half of the country’s state attorneys general fought the proposal due to concerns that it would remove competition and harm residents in New Jersey’s Bergen County.
Livonia, Mich.-based Trinity Health and Chicago-based CommonSpirit Health have signed an agreement for Trinity to acquire all MercyOne Health System assets and facilities.
Clive, Iowa-based MercyOne has 16 medical centers, 27 affiliate organizations and more than 420 care sites, according to a joint news release. It employs more than 20,000 people.
Trinity and CommonSpirit decided it would be best for MercyOne and the communities it serves for it to have a sole parent company, according to the news release. MercyOne facilities will transition to Trinity’s strategies and operations.
The transaction is expected to be finalized this summer.
“True to our shared Catholic mission, our goal is to provide high-quality, compassionate care with the best patient/member experience possible. We will accomplish that goal through a holistic approach, with a range of health services and technologies that are fully connected and coordinated,” Mike Slubowski, president and CEO of Trinity Health, said in the news release. “This agreement creates a fully integrated MercyOne to care for more people in a unified way.”
Salt Lake City-based Intermountain and Broomfield, CO-based SCL Health have now formed a 33-hospital, $14B nonprofit health system, which immediately becomes the 11th largest nationwide. The system will operate across seven states under the Intermountain brand, although the SCL hospitals will keep their legacy names and Catholic affiliation. Regulators signed off on the interstate merger after the systems agreed not to close any locations or services.
The Gist: Intermountain has been trying to build scale across the Mountain West in the last few years, having recently come up short in an attempt to merge with South Dakota-based Sanford Health.
The SCL deal will allowIntermountain to expand its SelectHealth insurance plan and integrated care model into the fast-growing Denver metro area, as well as into Kansas and Montana. As with any merger, the difficult work of combining cultures and demonstrating meaningful value for patients and consumers lies ahead.
According to unnamed Axios sources, UnitedHealth Group’s Optum has signed a deal to acquire the independent 500-physician multispecialty group, which operates more than 30 clinic locations and one of the largest ambulatory surgery centers in Texas. With more than 41,000 enrollees, Kelsey-Seybold controls 8 percent of the lucrative Medicare Advantage market in the Houston metro area.
In January 2020, private equity firm TPG Capital made a minority investment in the 73-year-old group, valuing it at $1.3B, to help expand its footprint. Should the current deal come to fruition, Kelsey-Seybold’s physicians would join the ranks of over 60K physicians owned by, or exclusively affiliated with, Optum.
The Gist: Fresh off last year’s acquisition of 700-physician, Boston-based Atrius Health, Optum is continuing its buying spree of large physician groups with a history of managing risk. It will be interesting to see how quickly UnitedHealth Group can combine its Optum-owned physician assets with its commercial insurance platform to create a compelling, lower-cost option for employers and Medicare Advantage enrollees—building on the model of its Harmony network in Southern California.
Of note, Kelsey-Seybold and United Healthcare have offered a co-branded insurance product for years, and UHG executives have said they plan to roll out Harmony in Texas and Seattle next.
Kelsey-Seybold is one a dwindling number of very large, independent multispecialty groups, andits sale to Optum may have other groups wondering about their ability to remain independent in an increasingly concentrated healthcare market.
The Federal Trade Commission and the Justice Department are seeking comments on ways merger guidelines should be updated, and physicians are raising concerns about private equity-backed buyouts of provider practices.
The FTC and the Justice Department announced in January that they’re seeking to revamp merger guidelines for businesses. Comments on how to “modernize the merger guidelines to better detect and prevent anticompetitive deals,” can be submitted to the agencies through April 21.
Comments are pouring in from physicians. Many of the comments are anonymous, but the commenters self-identify as physicians.
The physicians’ top concern are private equity-backed buyouts, according to an analysis by Law360. They’re also concerned by the profit-first attitude of healthcare and consolidation in the industry, according to the report.
The comments are coming in as private equity firms continue to buy up physician practices.
Private equity firms acquired 59 physician practices in 2013, and that number increased to 136 practices by 2016, according to a research letter published in JAMA.
Dialysis giant Fresenius Medical Care is creating a new $2.4B company by combining its US value-based care division, Fresenius Health Partners, with nephrologist network InterWell Health, and digital-first kidney care startup Cricket Health. Cricket Health CEO Robert Sepucha is set to lead the new company, which will be named InterWell Health, assuming the deal closes in the second half of 2022 as expected.
The Gist:This move will enable Fresenius to move further up the renal care delivery chain, managing patients with earlier stage chronic kidney disease before they need dialysis. Fresenius says the new company will more than triple its total addressable market in the US, from $50B to around $170B.
Seeing an opportunity to disrupt the dialysis market, which has been dominated by for-profit giants Fresenius and DaVita, significant capital has been flowing to numerous disruptors in the kidney care space who aim to bring care closer to consumers. Medicare, which spends nearly $115B annually on chronic kidney disease, is testing new payment models aimed at delaying the need for dialysis, as well as moving care into patients’ homes.
But whether Fresenius’s latest moves will make a significant difference in lowering the cost of kidney care remains to be seen.
A National Bureau of Economic Research working paper found that higher-priced hospitals in competitive markets were associated with lower patient mortality—flying in the face of the common policy narrative that higher-priced care is not higher quality. However, in more concentrated, less-competitive healthcare markets (in which over two-thirds of the nation’s hospitals are located), the study found no correlation between price and quality. Authors of the study analyzed patient outcomes from more than 200K admissions among commercially insured patients, transported by ambulance to about 1,800 hospitals between 2007 and 2014.
The Gist: As hospitals have consolidated, prices have risen by about 30 percent between 2015 to 2019, leading policy experts and regulators to search for ways to rein in price inflation.
While there continues to be widespread consensus that industry consolidation has resulted in unsustainable cost growth, the new study’s findings bring a bit of welcome nuance around impact on quality and outcomes to an otherwise one-sided, price-centric policy narrative.
HENRY KOTULA 