Final week, New Mexico-based Presbyterian Healthcare Providers and Midwest-based UnityPoint Well being signed a letter of intent to merge. That is considered one of many cross-market mergers that well being methods have explored lately, and one analyst — Sanjay Saxena, international chief of Boston Consulting Group’s healthcare division — thinks these sorts of bulletins will proceed within the coming years.
However that doesn’t imply the offers can be sealed. A big chunk of those supposed mergers will find yourself being known as off, Saxena mentioned in an interview after UnityPoint and Presbyterian introduced their plans.
UnityPoint beforehand had plans to merge with South Dakota-based Sanford Well being, however the $11 billion deal was scrapped in 2019. Now UnityPoint is attempting its hand at a mega-merger once more — its proposed marriage with Presbyterian would outcome within the mixed entity using greater than 40,000 folks, together with about 3,000 physicians and superior apply clinicians.
Each UnityPoint and Presbyterian declined requests for remark. However in an announcement the well being methods mentioned the deal would permit them to make “larger investments in medical excellence, digital innovation, workforce improvement and value-based care whereas decreasing general administrative prices.”
Final 12 months, Presbyterian reported an general lack of $370.7 million on revenues of $5.5 billion. The nine-hospital well being system has a mattress capability of 1,017.
UnityPoint Well being operates 20 regional hospitals throughout Iowa, Illinois and Wisconsin, together with 19 neighborhood community hospitals. The well being system reported a $441.3 million web loss on a income of $3.7 billion for the 9 months ending September 30.
There have been different cross-market megadeals in latest historical past, Saxena identified. For instance, Atrium Well being and Advocate Aurora Well being’s merger which closed in December, created a 67-hospital system throughout elements of the South and Midwest. One other giant transaction that closed final 12 months — between Utah-based Intermountain Well being and Colorado-based SCL Well being — created a 33-hospital system.
Saxena thinks extra hospitals and well being methods will proceed to pursue cross-market mergers. From a regulatory perspective, these offers are extra favorable as a result of they don’t entice as a lot consideration from the Federal Commerce Fee on anticompetitive grounds. The need for scale to realize a greater monetary place can also be a key motivator for such offers.
“When you have a look at the financials for many well being methods, they’re struggling. And I’m unsure I totally subscribe to this logic, however there’s a sense that if we get larger, we can be stronger and have the ability to climate the storm. So there may be inherently a perception that larger is healthier,” Saxena declared.
Many well being methods consider that in the event that they acquire quantity, they may have the ability to exert extra leverage over payers and suppliers, he added.
Although Saxena thinks extra well being methods will search cross-market offers, he additionally believes that many of those offers can be deserted attributable to well being methods realizing they’re not able to make the sacrifices wanted to reap the advantages of a megamerger.
Individually, different points additionally creep up — resembling who can be within the C-suite, the place the headquarters can be and who will get the dominant variety of board seats, Saxena identified. However positions — and typically duplicative service strains or applications — must be reduce to ensure that newly merged well being methods to reap the advantages of scale.
“There’s at all times a query of who’s in management after these transactions come collectively. It’s one factor to say you’re going to return collectively, and it’s one other factor to resolve who’s the acquiree versus the acquirer,” he defined. “I do know typically they attempt to make them equals, however there’s actually no such factor as a transaction of equals. And that’s why co-CEOs don’t work.”
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