By JEFF GOLDSMITH
In the past 12 months, there has been a raft of multi-billion-dollar mergers in health care. What do these deals tell us about the emerging health care landscape, and what will they mean for patients/consumers and the incumbent actors in the health system?
Health Systems
There have been a few large health system mergers in the past year, notably the $11 billion multi-market combinations of Aurora Health Care and Advocate Health Care Network in Milwaukee and suburban Chicago, as well as the proposed (but not yet consummated) $28 billion merger of Catholic Health Initiatives and Dignity Health. However, the bigger news may be the several mega-mergers that failed to happen, notably Atrium (Carolinas) and UNC Health Care and Providence St. Joseph Health and Ascension. In the latter case, which would have created a $45 billion colossus the size of HCA, both parties (and Ascension publicly) seemed to disavow their intention to grow further in hospital operations. Ascension has been quietly pruning back their operations in markets where their hospital is isolated, or the market is too small. Providence St. Joseph has been gradually working its way back from a $500 million drop in its net operating income from 2015 to 2016.
Another notable instance of caution flags flying was the combination of University of Pittsburgh Medical Center (UPMC) and PinnacleHealth, in central PA, which was completed in 2017. Moody’s downgraded UPMC’s debt on the grounds of UPMC’s deteriorating core market performance and integration risks with PinnacleHealth. As Moody’s action indicates, investor skepticism about hospital mega-mergers is escalating. Federal regulators remain vigilant about anti-competitive effects, having scotched an earlier Advocate combination with NorthShore University HealthSystem in suburban Chicago. The seemingly inevitable post-Obamacare march to hospital consolidation seems to have slowed markedly.
However, the most noteworthy hospital deal of the last five years was a much smaller one: this spring’s acquisition of $1.7 billion non-profit Mission Health of Asheville, NC, by HCA. This was remarkable in several respects. First, it was the first significant non-profit acquisition by HCA in 15 years (since Kansas City’s Health Midwest in 2003) and HCA’s first holdings in North Carolina. While Mission’s search for partnerships may have been catalyzed by a fear of being isolated in North Carolina by the Atrium/UNC combination, Mission Health certainly controlled its own destiny in its core market, with a 50% share of western North Carolina. Mission was not only well managed, clinically strong and solidly profitable, but its profits rose from 2016 to 2017, both from operations and in total.
