Baylor Scott & White, Memorial Hermann end merger talks

By | February 7, 2019

Dive Brief:

  • After months of exploratory talks, Dallas-based Baylor Scott & White Health and Houston-based Memorial Hermann Health system announced Tuesday they are pulling the plug on a potential merger.
  • The two systems signed a letter of intent to merge in October, raising the prospect of a behemoth system with combined revenue of more than $ 13 billion and over $ 360 million in operating income. Together, they would have had 68 hospitals, two health plans and more than 14,000 affiliated physicians in the Lone Star State.
  • While they are dropping merger plans, the systems said they will continue to look for opportunities for collaboration. They did not rule out the possibility of a merger in the future.

Dive Insight:

In a joint statement, the two systems said they “concluded that as strong, successful organizations, we are capable of achieving our visions for the future without merging at this time.” They added: “We have a tremendous amount of respect for each other and remain committed to strengthening our communities, advancing the health of Texas and transforming the delivery of care.” 

Healthcare M&A continues to be hot, and it’s somewhat unusual when a proposed pairing doesn’t go through. According to data compiled by Thomson Reuters, M&A activity exceeded $ 315 billion in the first half of 2018.

That pace has raised concerns about lack of provider competition, which has been blamed for driving up costs. A University of California-Berkeley report of health system consolidation in the state found that highly concentrated markets resulted in higher hospital and physician service fees, as well as higher Affordable Care Act premiums. The problem was particularly acute in northern California.

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In a recent report, the left-leaning Center for American Progress decried the situation and said consumers would benefit from “stronger enforcement, more competition and fairer prices” for healthcare services. The group called for stronger regulatory enforcement of horizontal and vertical integration and greater price, quality and utilization transparency.

States have been paying more attention to potential mergers and, in some cases, making demands companies must meet for approval.

The Massachusetts attorney general approved the merger between Beth Israel Deaconess Medical Center and Lahey Health in November, but not before setting conditions that require the parties to demonstrate they’re holding down costs while ensuring access to low-income patients. 

Under the approved deal, any price increases must be below the states healthcare cost growth benchmark, which is set at 3.1%. The conditions also require the combined system to participate in the state’s Medicaid program indefinitely, expand access to mental health and substance abuse treatment and invest heavily in its safety net hospitals and programs. 

Massachusetts imposed the conditions after a Health Policy Commission report warned the merger could cause a $ 128.4 million to $ 170.8 million jump in healthcare spending for inpatient, outpatient and adult primary care services and up to $ 59.7 million for specialty physician services.

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