Why one governor said no to hospitals' merger

Kentucky decision highlights potential gulf in federal policy

Kentucky Gov. Steve Beshear (D) last week rejected a proposed merger involving three major hospitals, highlighting the challenges facing the industry as it moves to consolidate, the Wall Street Journal reports.

Under the merger, which would have created the largest hospital system in the state, University of Louisville Hospital would have joined Jewish Hospital & St. Mary's Health Care and St. Joseph Health System, whose parent company is Colorado-based Catholic Health Initiatives (CHI). CHI would have owned 70% of the combined operations, which would have spanned 14 facilities and had $2.5 billion in annual revenue.

In a news release, Beshear expressed concern that the transaction was "not in the best interest of the commonwealth and therefore should not move forward." He noted that the deal could cause the state to lose control of University Hospital, which he termed a valuable public asset, and raised questions about the potential influence of a religious entity on hospital operations.

Kentucky Attorney General Jack Conway (D) echoed the concerns, citing an office report that found there would be "a material change in the level of service at the historically public" University Hospital. This would create legal concerns about potential "excessive entanglement between state and religion," the report said.

Responding to the governor's decision, University Hospital community and media relations manager David McArthur said the merger partners are "disappointed on behalf of patients across the commonwealth who would be the greatest beneficiaries of the proposed merger, and who have the most to lose if the merger does not move forward." Beshear plans to meet with merger partners in the near future, the Louisville Courier-Journal reports.

According to the Wall Street Journal, the rejection underscores a potential discrepancy between states and federal efficiency strategies—like ACOs—that could encourage consolidation. The Journal notes that hospitals often are major community institutions with public ownership or connections, which can make deals more complex and emotional at the state level (Karman, Denver Business Journal, 12/30/11; Wilde Mathews, Wall Street Journal, 12/31/11; Kenning, Courier-Journal, 12/30/11; Ungar, Courier-Journal, 1/3).

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