FTC, Justice Department have new guidelines for vertical mergers


Trump Administration Updates Vertical Merger Guidelines - Multichannel

Guidance on vertical mergers got its first major overhaul from the Federal Trade Commission and the U.S. Department of Justice in more than 35 years under new joint guidelines published June 30.

Vertical mergers are those that combine firms or assets at different stages of the same supply chain, such as healthcare company CVS Health’s acquisition of insurer Aetna. Previously proposed mergers like that of insurers Humana and Aetna would be considered horizontal.

FTC Chairman Joe Simon said in a news release that the new guidances “are an important step forward in maintaining vigorous antitrust enforcement, and reaffirm our commitment to challenge vertical mergers that are anticompetitive and would harm American consumers.”

Leaders said that the guidelines explain FTC and Justice Department investigative practices and will give the business community clarity about antitrust concerns, such as the type of evidence the FTC and Justice Department review and how they define markets.

To read the full guidelines, click here






Navigating a Post-Covid Path to the New Normal with Gist Healthcare CEO, Chas Roades


Covid-19, Regulatory Changes and Election Implications: An Inside ...Chas Roades (@ChasRoades) | Twitter

Healthcare is Hard: A Podcast for Insiders; June 11, 2020

Over the course of nearly 20 years as Chief Research Officer at The Advisory Board Company, Chas Roades became a trusted advisor for CEOs, leadership teams and boards of directors at health systems across the country. When The Advisory Board was acquired by Optum in 2017, Chas left the company with Chief Medical Officer, Lisa Bielamowicz. Together they founded Gist Healthcare, where they play a similar role, but take an even deeper and more focused look at the issues health systems are facing.

As Chas explains, Gist Healthcare has members from Allentown, Pennsylvania to Beverly Hills, California and everywhere in between. Most of the organizations Gist works with are regional health systems in the $2 to $5 billion range, where Chas and his colleagues become adjunct members of the executive team and board. In this role, Chas is typically hopscotching the country for in-person meetings and strategy sessions, but Covid-19 has brought many changes.

“Almost overnight, Chas went from in-depth sessions about long-term five-year strategy, to discussions about how health systems will make it through the next six weeks and after that, adapt to the new normal. He spoke to Keith Figlioli about many of the issues impacting these discussions including:

  • Corporate Governance. The decisions health systems will be forced to make over the next two to five years are staggeringly big, according to Chas. As a result, Gist is spending a lot of time thinking about governance right now and how to help health systems supercharge governance processes to lay a foundation for the making these difficult choices.
  • Health Systems Acting Like Systems. As health systems struggle to maintain revenue and margins, they’ll be forced to streamline operations in a way that finally takes advantage of system value. As providers consolidated in recent years, they successfully met the goal of gaining size and negotiating leverage, but paid much less attention to the harder part – controlling cost and creating value. That’s about to change. It will be a lasting impact of Covid-19, and an opportunity for innovators.
  • The Telehealth Land Grab. Providers have quickly ramped-up telehealth services as a necessity to survive during lockdowns. But as telehealth plays a larger role in the new standard of care, payers will not sit idly by and are preparing to double-down on their own virtual care capabilities. They’re looking to take over the virtual space and own the digital front door in an effort to gain coveted customer loyalty. Chas talks about how it would be foolish for providers to expect that payers will continue reimburse at high rates or at parity for physical visits.
  • The Battleground Over Physicians. This is the other area to watch as payers and providers clash over the hearts and minds of consumers. The years-long trend of physician practices being acquired and rolled-up into larger organizations will significantly accelerate due to Covid-19. The financial pain the pandemic has caused will force some practices out of business and many others looking for an exit. And as health systems deal with their own financial hardships, payers with deep pockets are the more likely suitor.”





Highmark, HealthNow New York enter affiliation agreement


Insurers Highmark, HealthNow New York join forces, predict better ...

Highmark is expanding its reach into New York through an affiliation with HealthNow New York.

The acquisition is pending regulatory approval, the two Blues insurers announced Tuesday. Should it be finalized, HealthNow’s plans will continue to operate locally as Highmark BlueCross BlueShield of Western New York and Highmark BlueShield of Northeastern New York.

HealthNow will bring nearly 1 million additional members into the Highmark fold and boasted $2.8 billion in revenue for 2019. It will join the fourth largest Blues organization in the country, building on Highmark’s 5.6 million members and $18 billion in operating revenue for 2019.

David Holmberg, Highmark’s CEO, said on a call with reporters that Highmark has been pursuing a “focused growth strategy of working with like-minded partners” to improve care quality and affordability.

“We believe together Highmark and HealthNow can be transformational as we prepare healthcare for the next generation of people in all of our regions,” Holmberg said.

Highmark entered intro similar affiliations to expand into Delaware and West Virginia.

HealthNow will maintain its Buffalo headquarters as well as offices in the Albany area and will maintain a significant amount of local autonomy, executives said on the call. The boards of both insurers have unanimously signed off on the deal.

Dave Anderson, CEO of HealthNow, will remain at the helm once the two insurers have integrated. Anderson told reporters that uniting with Highmark allows it to maintain its community-based presence and approach while tapping into the scale of the larger health plan.

He said the affiliation has been in the works for more than two and a half years, but the COVID-19 pandemic highlighted just how critical the additional scale would be to filling some of the gaps exposed as the virus spread.

So while COVID-19 wasn’t on either company’s radar as talks began, the pandemic did play a key role in underscoring the value of uniting, Anderson said.

“COVID has essentially emphasized the strategy that we put in place,” he said.

The insurers did not offer an estimated timeline for the affiliation to be completed.




Beaumont, Advocate Aurora explore merger


Advocate Aurora Health, Beaumont Health Exploring Partnership ...

Beaumont Health announced it is in partnership talks with Advocate Aurora Health on June 17, less than one month after canceling a plan to merge with Akron, Ohio-based Summa Health. 

Southfield, Mich.-based Beaumont and Advocate Aurora, which has dual headquarters in Downers Grove, Ill., and Milwaukee, said they began partnership discussions in late 2019 but paused talks to allow both organizations to focus on the COVID-19 pandemic. On June 17, the health systems signed a nonbinding letter of intent to create a health system that would span across Michigan, Wisconsin and Illinois.

Though talks are still in early stages, the health systems have already agreed to an equal one-third governance representation of any future partnership between Beaumont, Advocate Health Care and Aurora Health Care, which merged in 2018 to create Advocate Aurora Health.

Beaumont President and CEO John Fox said the system is excited to explore the partnership with Advocate Aurora.

“The potential opportunity to leverage the strength and scale of a regional organization while maintaining a local focus and strong presence in Michigan as a leader and major employer is important to us,” Mr. Fox said in a news release.

Advocate Aurora President and CEO Jim Skogsbergh described the potential deal as a “unique opportunity.”

“Beaumont Health has built a strong reputation for clinical excellence, education and research,” Mr. Skogsbergh said in a news release. “This is a unique opportunity to explore a partnership with a like-minded, purpose-driven organization.”





Tower Health cutting 1,000 jobs as COVID-19 losses mount


Tower Health cutting 1,000 jobs as COVID-19 losses mount

Tower Health on Tuesday announced that it is cutting 1,000 jobs, or about 8 percent of its workforce, citing the loss of $212 million in revenue through May because of the coronavirus restrictions on nonurgent care.

Fast-growing Tower had already furloughed at least 1,000 employees in April. It’s not clear how much overlap there is between the furloughed employees, some of whom have returned to work, and the people who are now losing their jobs permanently. Tower employs 12,355, including part-timers.

“The government-mandated closure of many outpatient facilities and the suspension of elective procedures caused a 40 percent drop in system revenue,” Tower’s president and chief executive, Clint Matthews, wrote in an email to staff. “At the same time, our spending increased for personal protective equipment, staff support, and COVID-related equipment needs.”

Despite the receipt of $66 million in grants through the federal CARES Act, Tower reported an operating loss of $91.6 million in the three months ended March 31, according to its disclosure to bondholders.

Tower, which is anchored by Reading Hospital in Berks County, expanded most recently with the December acquisition of St. Christopher’s Hospital for Children in a partnership with Drexel University. Tower paid $50 million for the hospital’s business, but also signed a long-term lease with a company that paid another $65 million for the real estate.

In 2017, Tower paid $418 million for five community hospitals in Southeastern Pennsylvania — Brandywine in Coatesville, Chestnut Hill in Philadelphia, Jennersville Regional in West Grove, Phoenixville in Phoenixville, and Pottstown Memorial Medical Center, now called Pottstown Hospital, in Pottstown.

Tower’s goal was to remain competitive as bigger systems — the University of Pennsylvania Health System and Jefferson Health from the Southeast, Lehigh Valley Health Network and St. Luke’s University Health Network from the east and northeast, and University of Pittsburgh Medical Center from the west — encroached on its Berk’s county base.

Tower had set itself a difficult task in the best of times, but COVID-19 has made it significantly harder for the nonprofit, which had an operating loss of $175 million on revenue of $1.75 billion in the year ended June 30, 2019.

Because health systems have high fixed costs for buildings and equipment needed no matter how many patients are coming through the door, it’s hard for them to limit the impact of the 30% to 50% collapse in demand caused by the coronavirus pandemic.

“Hospitals and all other health service providers were hit with this disruption with lightning speed, forcing the industry to learn in real time how to handle a situation for which there was no playbook,” Standard & Poor’s analysts David P. Peknay and Suzie R. Desai said in a research report last month.

Tower’s said positions will be eliminated in executive, management, clinical, and support areas.

The cuts include consolidations of clinical operations. Tower plans to close Pottstown Hospital’s maternity unit, which employs 32 nurses and where 359 babies were born in 2018, according to the most recent state data. Tower also has maternity units at Reading Hospital in West Reading and at Phoenixville Hospital.

Tower is aiming to trim expenses by $230 million over the next two years, Matthews told staff.

Like many other health systems, Tower has taken advantage of federal programs to ensure that it has ample cash in the bank to run its businesses. Tower has deferred payroll taxes, temporarily sparing $25 million. It received $166 million in advanced Medicare payments in April.

In the private sphere, Tower obtained a $40 million line of credit in April for St. Chris, which has lost $23.6 million on operations since Tower and Drexel bought it in December. Last month, Tower said it was in the final stages of negotiating a deal to sell and then lease back 24 medical office buildings. That was expected to generate $200 million in cash for Tower.





INSIGHT: Health-Care M&A Post-Pandemic—Opportunities, Not Opportunism


INSIGHT: Health-Care M&A Post-Pandemic—Opportunities, Not Opportunism

The Covid-19 pandemic has devastated the health-care industry. In addition to the tragedies that the pandemic has brought, health systems have universally experienced severe and rapid deterioration of their bottom lines due to plummeting patient volumes, pausing of high margin elective surgical procedures, and increased expenses.

By some estimates, health system losses will be around $200 billion by the end of June and revenues have dropped by around 50 percent. As a result of the financial uncertainty caused by the pandemic, many hospital and health systems terminated or delayed potential transactions as they focused on managing the crisis and protecting their workforces and communities.

But this may just be the calm before a big M&A storm.

Rise in M&A Activity

Through our work as legal and communications counselors, we have seen preliminary M&A activity rise in recent weeks, with providers exploring and negotiating transactions, including several that have not yet been publicly announced.

Some systems are looking to capitalize on the time between the end of the first wave of Covid-19 and a potential resurgence in the fall to get letters of intent finalized and announced. This coming M&A activity presents legal and communications challenges when the national spotlight is firmly on health systems.

Providers are starting to resurrect deals that were paused during the initial period of the Covid-19 crisis, including Community Health System’s sale of Abilene Regional Medical Center and Brownwood Regional Medical Center to Hendrick Health System.

Some systems are seeking new strategic partners, such as Lake Health in Ohio, and New Hanover Regional Medical Center in North Carolina, which resumed its recent RFP response process after a pause.

Still others are looking for new opportunities consistent with pre-Covid growth strategies, as adjusted for pandemic-related developments and challenges.

More Consolidation

Larger and more financially robust health systems are expected to weather the crisis, whereas smaller systems and hospitals with less cash and tighter operating margins, including rural and critical access hospitals, may be facing insolvency, closure, and bankruptcy. This creates a scenario where one party is financially distressed as a result of the pandemic and needs to partner with or join another system to survive. These circumstances will likely fuel increased consolidation in the health-care industry.

For a struggling provider, joining a larger system can offer much-needed financial commitments, access to capital, disciplined management structure, economies of scale for purchasing and improved IT infrastructure, among many other strategic benefits. A well-positioned system, even if financially weakened due to pandemic challenges, will be able to negotiate favorable deal terms if it has significant strategic value to its prospective partner.

Communications Strategy is Important

As providers explore and execute partnerships, they must implement a stakeholder and communications strategy that focuses on benefits for each side given the new financial reality. Doing so will minimize criticism of opportunism by the acquiring system—and best position a definitive agreement and successful deal.

An effective communications strategy will emphasize how the proposed transaction will maintain or improve quality or affordability, ensure access to care for communities and address financial challenges faced by health systems as a result of the pandemic.

Health systems should articulate how their M&A activity will stabilize affected health systems, allow them to manage the Covid-19 crisis and future pandemics, and continue to meet the overall care needs of the community. It can also highlight how these partnerships will facilitate continued care in a market, which otherwise might lose a valuable health-care resource, as well as the positive economic benefits the transaction will bring for local communities.

Communications that support the vision, rationale and benefits of a deal will also need to be relevant to the regulatory bodies whose approval may be required.

Public perception and support of health-care providers have been extremely positive during the pandemic to date, as evidenced by homemade banners, balcony tributes, and praise on social media. Health systems and their staffs have borne personal risk and financial pain by focusing on patients and public health at the expense of all else. This goodwill can be valuable as health systems seek stakeholder and community support for their transactions.

That goodwill can also quickly be forgotten.

As health systems race to the altar to beat out competitors for M&A targets and other strategic relationships, it is critical that they are thoughtful in structuring their deals and justifying the activity.

For example, acquisitions and partnerships involving substantial outlays of capital and lucrative executive compensation or severance packages will be viewed negatively if undertaken by a system that instituted large compensation reductions across the system or even furloughed or laid off employees during the pandemic.

As the dust begins to settle from the first wave of Covid-19, it is clear that there will be drastic changes to how health systems do business. The pandemic will also create financial winners and losers. Hospitals and health systems must think proactively about a strategy for growth as opportunities with willing transaction partners arise.

But being proactive must be balanced against appearing to be opportunistic or taking advantage of the worst health crisis in our lifetimes. To maintain their goodwill and reputations, health systems should continue to do deals for the right reasons and for the benefit of their communities.




Atrium Health bids $3.1B for North Carolina hospital


Atrium Health preps for more coronavirus patients - Charlotte ...

Charlotte, N.C.-based Atrium Health committed to spending $3.1 billion to enter into a long-term lease and make improvements to New Hanover Regional Medical Center in Wilmington, N.C.

Atrium Health is one of three health systems working to secure a deal to partner or own New Hanover Regional. The health system presented its proposal June 11.

During the presentation, Atrium Health proposed entering into a 40-year, long-term operating lease before becoming the owner. The system said it would pay $941.8 million, including $50 million in upfront cash to the county, lease payments and community foundation funds. It also said it would invest up to $2.17 billion for capital improvements. 

Under the deal, if selected, New Hanover Regional would maintain a local governance structure, and also have two seats on Atrium Health’s board.

The other two health systems interested in acquiring the hospital are Durham, N.C.-based Duke Health and Winston-Salem, N.C.-based Novant Health. Duke Health proposed purchasing the hospital for $1.4 billion and investing $1.9 billion in capital improvements over the next five years. Novant Health proposed spending $5 billion.





$5B offer to North Carolina hospital gives it ‘best of both worlds,’ Novant CEO says


Novant Health: Transforming Revenue Cycle Services in the ...

Novant Health presented its proposal June 10 to partner with New Hanover Regional Medical Center, a county-owned hospital in Wilmington, N.C. The Winston-Salem, N.C.-based health system is one of three organizations interested in securing the deal. 

During the public presentation, Novant Health President and CEO Carl Armato highlighted the system’s financial strength and its potential partnership with Chapel Hill, N.C.-based UNC Health, according to WilmingtonBiz.

In May, Novant, UNC Health and UNC School of Medicine signed a letter of intent to enhance clinical services and medical education at New Hanover Regional if the hospital chooses to form a joint venture with, affiliate with or sell to Novant.  

“We are binging, I believe, the best of both worlds: one of the largest not-for-profit health care systems in the country, that’s financially strong, along with UNC Health Care and UNC medical school to really enhance and grow the economic development of Wilmington,” Mr. Armato said, according to WilmingtonBiz.

The 15-hospital system is offering up to $2 billion to New Hanover County, $50 million to the hospital’s foundation to fund unmet community needs and an investment of $3.1 billion in capital projects over the next decade, according to the report. 

“We actually proposed a very significant financial commitment to New Hanover Regional Medical Center, that local board, that management team, that community — your community,” Mr. Armato said, according to the report. “And we want you to know that we have the resources to back that up.”

Novant made its proposal the day after Durham, N.C.-based Duke Health pitched its deal for New Hanover Regional. Charlotte, N.C.-based Atrium Health, the third health system trying to secure a deal with the hospital, will make its presentation June 11. 





Duke Health pitches $3B deal for North Carolina hospital


Duke Clinic... - Duke University Health System Office Photo ...

Duke Health presented its proposal on June 9 to purchase New Hanover Regional Medical Center in Wilmington, N.C. The Durham, N.C.-based system is one of three organizations trying to secure the deal.  

During the presentation, Duke Health officials proposed purchasing the hospital for $1.4 billion and investing $1.9 billion in capital improvements over the next five years, according to TV station WWAY. The health system would also bring its graduate medical school programs to New Hanover Regional and keep all hospital employees on staff for at least one year, according to the report.

The other two health systems interested in acquiring the hospital — Winston-Salem, N.C.-based Novant Health and Charlotte, N.C.-based Atrium Health — will present their proposals on June 10 and June 11. 

Access the full WWAY article here.





Physicians acquire 35-hospital health system from private equity firm


Sources: Boston-based Steward Health Care System to relocate ...

The 35-hospital system announced June 2 that a management group of Steward physicians led by the company’s CEO and founder acquired a controlling interest of Steward from Cerberus Capital Management, a private equity firm. The physicians will control 90 percent of the company and Medical Properties Trust will maintain its 10 percent stake. 

“The COVID-19 global pandemic has exposed serious deficiencies in the world’s health care systems, with a disproportionate impact on underserved communities and populations,” Steward CEO and Founder Ralph de la Torre, MD, said in a news release. “We believe that future health care management must completely integrate long-term clinical needs with investments. As physicians first, we will focus on creating structures and timelines that meet the long-term needs of our communities and the short-term needs of our patients.”

Steward was founded more than a decade ago, and Cerberus invested in the company in 2010. Today, Steward has 35 hospitals in nine states and more than 40,000 employees.