Hospital Merger Seeks to Create Regional Giant in the West
27 October 2020 - 9:31AM
Dow Jones News
By Melanie Evans
Utah's largest hospital system, Intermountain Healthcare, will
expand into the Midwest with a proposed merger to create a regional
hospital giant, the latest pairing amid a spate of consolidation in
the sector.
Under the deal unveiled Monday, Intermountain, a nonprofit based
in Salt Lake City, Utah, and Sanford Health, a nonprofit based in
Sioux Falls, S.D., would combine 69 hospitals across Idaho, Iowa,
Minnesota, North Dakota, South Dakota and Utah. The merger would
also unite the two hospital systems' insurance operations, which
now cover about 1.1 million people, and include more than 400
clinics.
The deal comes as hospitals look to expand their networks and
gain more influence over where patients get care. Hospitals face
more competition from retailers including Walmart Inc. and CVS
Health Corp., which have pushed further into health-care delivery.
They are also confronting increasingly intense scrutiny from
employers seeking to better control costs of employee health
benefits.
Some proposed hospital deals have collapsed recently. Advocate
Aurora Health and Beaumont Health announced earlier this month they
had called off merger talks. Last year, two major Texas systems
scrapped deal plans and Sanford's merger talks with UnityPoint
Health ended without a deal.
Other proposed deals have succeeded in creating new powerhouse
hospital systems, adding to the $1 trillion hospital sector's brisk
deal-making pace in recent years. Last year's merger of Dignity
Health and Catholic Health Initiatives created CommonSpirit Health,
which at the time had 142 hospitals. The prior year, Aurora Health
Care and Advocate Health Care formed Advocate Aurora and Bon
Secours Health System Inc. merged with Mercy Health.
Hospital-system executives say deals provide scale and other
benefits that help to improve quality of care and reduce costs, but
dominant hospital systems can also negotiate terms that could
stifle competition. Recent studies have found mergers that don't
enhance quality, but do raise prices.
"There's been a huge amount of consolidation and we have very
little to show for it," said Martin Gaynor, a former director of
the Bureau of Economics for the Federal Trade Commission and a
health-policy professor at Carnegie Mellon University.
Mergers of hospital rivals that compete in the same market for
the same patients are the greatest threat to competition, said
health policy and economic experts. Regional consolidation could
raise concerns for insurers that contract for national health-care
networks on behalf of large employers, said Leemore Dafny, a health
economist at Harvard Business School. "I would not give them a free
pass."
Intermountain and Sanford chief executives said concerns that
higher prices would follow the systems' combination are unfounded.
"We're not playing this game to extract better prices from
insurers," Intermountain's CEO Marc Harrison said. The combined
system's greater geographic reach would expand health-care networks
for employers and increase offerings of Sanford's smaller insurance
arm, they said.
The companies are planning on more deal making as they seek
continued growth, Dr. Harrison said. "We've staked out an eastern
and western center of gravity" for an expanding hospital system in
the West, he said.
Dr. Harrison will be named CEO of the combined hospital system.
Sanford CEO Kelby Krabbenhoft will be named president emeritus.
Combined 2019 revenue for the two systems totaled about $13
billion, according to financial statements.
Write to Melanie Evans at Melanie.Evans@wsj.com
(END) Dow Jones Newswires
October 26, 2020 18:16 ET (22:16 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
CVS Health (NYSE:CVS)
Historical Stock Chart
From Apr 2024 to May 2024
CVS Health (NYSE:CVS)
Historical Stock Chart
From May 2023 to May 2024