October 2, 2018

Baylor Scott & White, Memorial Hermann plan to merge: What you need to know

Daily Briefing

    Texas-based Baylor Scott & White Health and Memorial Hermann Health System on Monday announced plans to merge to create 68-hospital system with annual revenue of over $14 billion.

    The latest in vertical integration—and how you can prepare for new competition

    Two big players

    Baylor Scott & White is a nonprofit health system with a large presence in Dallas. The health system has 49 hospitals and more than 1,000 access points. It had a 7% operating margin and a total margin of 10% in the first nine months of its most recent fiscal year.

    Memorial Hermann, based in Houston, is a nonprofit health system with 300 care delivery sites in the Houston area. Texas Medical Center is the system's flagship hospital. The health system is profitable but in the last year and a half "has struggled" in its competitive Houston market, according to Axios' "Vitals."

    What the merged system would look like

    If approved, the merged health system would include 68 hospital campuses, over 1,100 care delivery sites, and almost 14,000 employed, independent, and academic physicians, as well as two health plans.

    The merged system would have a new name. However, Baylor Scott & White and Memorial Hermann facilities would keep their brands in their respective markets.

    Jim Hinton, current CEO of Baylor Scott & White, would serve as CEO of the combined system and would be joined in the proposed Office of the CEO by Chuck Stokes, current president and CEO of Memorial Hermann.

    A board with equal members from Baylor Scott & White and Memorial Herman would govern the merged health system, with Ross McKnight, the current chair of Baylor Scott & White's board, serving as the combined system's board chair. Memorial Hermann would select a vice chair to replace McKnight after a two-year term.

    Next steps

    The two organizations expect to reach a definitive agreement in early 2019, according to Modern Healthcare. The proposal would be subject to approval from the Federal Trade Commission and the Texas attorney general.

    Hinton in a release said, "This is about two mission-driven organizations—both committed to making safe, high-quality healthcare more convenient and affordable—building something transformative together."

    Stokes in a release said, "Together, we believe we will be able to accelerate our commitments to make care more consumer centric; grow our capabilities to manage the health of populations; and bend the unsustainable healthcare cost curve in the state."

    McKnight said the proposed merger "starts the next chapter in the legacies of service and innovation for both systems. It will not only make a positive difference in the lives of millions here, it will become a national model" (Evans, Wall Street Journal, 10/1; Herman, Axios, 10/1; Rege, Becker's Hospital Review, 10/1; Kacik, Modern Healthcare, 10/1; Baylor/Memorial Hermann press release, 10/1).

    Next, learn how mega-mergers could impact your organization

    Health care mergers and acquisitions are hardly new, but many recent transactions involve vertical integration: new-in-kind combinations of major players resulting in unprecedented scale and scope.

    Use this research report to plan for integrators' possible moves, forecast potential effects on your organization, and create a plan to defend against or capitalize on the changes.

    Download Now

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