Called off: Baylor, Memorial Hermann cancel plans to merge

Baylor Scott & White Health and Memorial Hermann Health System on Tuesday announced that they've called off plans to merge.

Why you shouldn't believe the hype about hospital mergers and acquisitions

Background

In October 2018, Dallas-based Baylor Scott & White and Houston-based Memorial Hermann announced plans to merge. Had the merger gone through, the combined health system would have been the largest nonprofit health system in Texas, spanning 68 hospital campuses and over 1,100 care delivery sites. It would have had almost 14,000 employed, independent, and academic physicians, as well as two health plans.

The merged system would have had roughly $15 billion in annual revenue.

At the time of the initial announcement, Chuck Stokes, president and CEO of Memorial Hermann, said the health systems believed the merger would allow them to "accelerate our commitments to make care more consumer centric; grow our capabilities to manage the health of populations; and bend the unsustainable health care cost curve in the state."

Merger called off

However, on Tuesday, the health systems announced they're no longer pursuing a merger.

In a statement, the health systems said, "As strong, successful organizations, we are capable of achieving our visions for the future without merging at this time." They continued, "We have a tremendous amount of respect for each other and remain committed to strengthening our communities, advancing the health of Texans and transforming the delivery of care."

According to the Wall Street Journal, one person familiar with the deal said a key issue was the "scope of the cuts to operational expenses after the merger, which Memorial Hermann couldn't stomach."

However, the hospitals denied that these cuts were a reason for the deal's cancellation. "There was no disagreement around the need to address the cost of care for those we serve," the two health systems said. "Both organizations are deeply committed to that."

Implications

The news of the cancelation comes amid a raft of mergers in the health care industry. Meanwhile, some experts suggested the health systems' announcement not to merge might be a sign of changing attitudes to come. Joe Lupica, chair of Newpoint Healthcare Advisors, said the news about the Texas deal "could actually be a bellwether for the proposition that a knee-jerk toward merging to advance your mission and to shore up perceived weaknesses may not be the best answer."

Separately, Chris Skisak, executive director of the Houston Business Coalition on Health, said the cancelation of this merger is good news for Texas employers, as employers often face higher health care costs when hospitals merge (Kacik, Modern Healthcare, 2/5; Evans, Wall Street Journal, 2/5; Deam, Houston Chronicle, 2/5; Sanborn, Healthcare Finance News, 2/5).

The strategic thinker's guide to partnerships and affiliations

With declining reimbursements, ongoing capital pressures, unpredictable volumes, and, above all, continued disruption to the fundamental mechanics of the industry, hospital and health system leaders appear increasingly inclined to seek strength in size and numbers.

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