Hard on the heels of the merger announcement between Dignity Health and Catholic Health Initiatives came the news that Ascension Health and Providence St. Joseph Health were in their own talks to merge.
The Dignity/CHI deal will create a 139-hospital system spanning 28 states, with revenue of more than $28 billion. If the Ascension/Providence merger is realized, the resulting company would be the largest hospital system, with 191 hospitals in 27 states, and annual revenue of $44.8 billion. By contrast, the current largest system, for-profit HCA (NYSE: HCA), has approximately 175 hospitals and revenue of $42.7 billion.
Even if the Ascension/Providence deal doesn’t go through, the course is already set for continuing consolidation, according to Cain Brothers‘ managing director Jim Moloney. We spoke with him the day after the Ascension/Providence news broke, and here’s where he says the U.S. health system is going.
Thanks to the operating pressures on health systems, hospitals and physicians, consolidation will continue. “What we expect to see is a very aggressive trend toward consolidation in local markets,” Moloney said.
Although consolidation between two local entities is constrained by anti-trust concerns, he expects to see the development of large, regional health systems. “Atlanta is beginning to approximate what the future health systems will be.”
Major players in that market have formed through acquisitions over the last five years. The most active in recent years is Atlanta-based Piedmont Healthcare, which now includes eight hospitals branded with the Piedmont name, 21 urgent care centers, 28 Piedmont QuickCare locations and 527 Piedmont Clinic physician locations.
The system has made four acquisitions since 2014, extending its footprint northeast to Athens (Athens Regional Health System, 331 beds) and southwest to Columbus (Columbus Regional Health, 413 beds), as well as Conyers (Rockdale Medical Center, 138 beds) and Covington (Newton Medical Center, 97 beds).
Emory Healthcare, another Atlanta-based system, made two acquisitions of standalone Georgia hospitals in 2012, in Atlanta and Riverdale. In November 2017, it signed a letter of intent to merge with financially struggling DeKalb Medical, a three-hospital system.
Emory Healthcare includes the Emory Healthcare Network, with nearly 2,000 Emory and private practice physicians and seven hospitals in metro Atlanta. It also has 200 provider locations across the state, and nearly 60 urgent care clinics in metro Atlanta.
WellStar Health System is the latest entry in the market. The system was formed with the $661 million purchase of five Atlanta metro-area hospitals from Tenet Healthcare (NYSE: THC) in December 2015. Three months later, it acquired not-for-profit West Georgia Health, comprised of West Georgia Medical Center (276 beds), two skilled nursing facilities, Enoch Callaway Cancer Clinic, West Georgia Heart Clinic, its Women’s Health Center and West Georgia Hospice.
These systems coexist, without creating market concentration in a local market, a trigger for states’ attorneys general and the Federal Trade Commission to oppose a merger.
“After some time, we’re going to get super-regional consolidation,” Moloney noted. Providence St. Joseph Health is one example, stretching from Alaska to southern California, as is Kaiser Permanente, spanning states from Washington to the Mexican border.
The Dignity/CHI merger is different, because it doesn’t result in a cohesive system with regional markets. On the other hand, the recently announced merger between Chicago-based Advocate Health Care with Milwaukee-based Aurora Health Care, creates a continguous system from northern Illinois into southern Wisconsin.
The combined organization will be called Advocate Aurora Health, and will be the 10th largest not-for-profit healthcare system in the United States, with 27 hospitals, 500 outpatient locations and more than 3,300 employed physicians.
The path is by no means clear, however. “There’s going to be conflice between scale and regional strategies,” Moloney noted.
In the end, he predicted, there will be seven or eight super-regional systems across the United States. But not any time soon. Building such systems will take more than a decade, and will go in fits and starts.
But there’s one thing that’s clear. Hospitals and health systems need to cover all rungs on “the ladder of acuity,” Moloney said, going from urgent care centers and ambulatory surgery centers to post-acute systems. Strange times, indeed.