December 11, 2017

Ascension, Providence in talks to merge into 191-hospital, $44.8B system, WSJ reports

Daily Briefing

    Ascension and Providence St. Joseph Health are reportedly in talks to merge, according to individuals familiar with the matter, but the sources emphasized that "a merger is far from assured," the Wall Street Journal reports. 

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    Scope of the deal

    A merger between the two organizations "would create an entity of unprecedented reach," the Journal reports. The merged organization would have 191 hospitals in 27 states with annual revenue of $44.8 billion based on the most recent fiscal year, according to the Journal.

    The merged organization would overtake HCA Healthcare as the largest hospital operator in the country, the Journal reports.

    The discussions "have included a variety of arrangements short of a merger," the Journal reports, and the newspaper's sources emphasized that while talks have been underway for months, no deal has been reached.

    St. Louis-based Ascension operates in 22 states and Washington, D.C., while Providence, which is based in Renton, Washington, has hospitals in seven states. Both organizations currently have hospitals in Texas and Washington state.

    The financial terms of the potential deal were not clear, according to the Journal. A merger between the two Catholic organizations would require approval from church authorities.

    Discussion

    The news of the potential Ascension-Providence merger comes amid a wave of health care sector merger news over the past week. Catholic Health Initiatives (CHI) and Dignity Health announced a proposal to merge on Thursday, as did Aurora Health and Advocate Health on Dec. 4.

    Meanwhile, CVS and Aetna confirmed merger plans on Sunday, Dec. 3, while UnitedHealth Group's Optum division on Wednesday announced its plans to acquire DaVita's physician group. (Optum also owns Advisory Board, which publishes the Daily Briefing.)

    An Ascension-Providence merger would create an even larger entity than the proposed CHI-Dignity merger, which would encompass 139 hospitals and have a combined revenue of $28.4 billion.

    The health care sector's raft of consolidation could bring tighter care networks, according to the Journal. Proponents say that could reduce unnecessary health care spending, but opponents say it could raise prices and limit patient choice.

    Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University, said, "It can be a vicious cycle where consolidation happens in one place, and then other players say, 'I need to consolidate too.'" He added, "Everybody's looking for ways to increase their negotiating leverage" (Evans/Wilde Mathews, Wall Street Journal, 12/10; Dwyer, St. Louis Business Journal, 12/10; Modern Healthcare, 12/10; Wise, Reuters, 12/10). 

    There's more than just M&A. Get the cheat sheet for hospital partnership and affiliation models.

    The field guide to hospital partnership and affiliation models

    Behind the flurry of M&A in recent years, a deeper trend of hospital integration is underway: the emergence of alternative partnerships that secure many of the same benefits of M&A without the financial and legal commitment: Clinical affiliation, regional collaborative, accountable care organization, and clinically integrated network.

    This guide defines these types of partnerships and offers benefits, drawbacks, and examples of organizations in each.

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