Hospital mergers will get more attention from regulators

While most analysts expect to see more hospital mergers in 2024, some acknowledge that one aspect that could affect deal-making is the regulatory environment.

The Federal Trade Commission is asking organizations to provide more information on proposed mergers. Analysts still expect more hospital mergers, but deals could get more scrutiny. (Image credit: ©Roman Babakin - stock.adobe.com)

The Federal Trade Commission has shown its willingness to oppose hospital mergers. The FTC has moved to block deals, particularly involving organizations in the same regions, saying they could lead to higher prices or reduced services for consumers. The FTC sued to block John Muir Health’s purchase of San Ramon Regional Medical Center from Tenet Healthcare Corp., and the planned deal was dropped last month.

The FTC said last year it wanted to get more information ahead of proposed mergers and acquisitions, so regulators can make better decisions. The FTC and Justice Department released the new merger guidelines in December.

• Read more: Hospital merger activity is expected to rise in 2024

Michael Abrams, a managing partner of Numerof & Associates, a global healthcare consulting firm, says at minimum, organizations are going to have to give regulators more information.

“They've certainly made the merger reporting process quite a bit more time consuming, and more detailed, and it gives both entities the FTC and DOJ a lot more time and a lot more material to scrutinize,” Abrams tells Chief Healthcare Executive®. (Healthcare leaders talk about mergers in this video. The story continues below.)

Federal regulators have shown particular resistance, or at least scrutiny, to deals involving hospitals and systems in the same market. Amid FTC opposition, SUNY Upstate Medical University abandoned its plans to acquire Crouse Health System in Syracuse, N.Y. last year.

Analysts say larger health systems are going to look at mergers and acquisitions involving systems in different states, such as the creation of Advocate Health through the merger of Atrium Health and Advocate Aurora Health.

Kevin Holloran, senior director for Fitch Ratings, says he expects more deals involving systems in different markets.

Deals involving hospitals in different regions are “more palatable to the regulatory bodies,” Holloran says. “So I think we'll see that, but I don't think we'll see an uptick at all in intramarket mergers. And believe me, there's lots of people that would like to.”

Although cross-market deals have typically been approved, federal regulators could be giving more attention to mergers involving hospitals and health systems in different regions, Abrams suggests.

“I think that there is a move there to take a closer look at cross-market mergers, which have previously been given a green light,” Abrams says.

Abrams says he has concerns about the growing consolidation of healthcare, which he says could lead to a small number of large systems remaining.

He says he was surprised that there wasn’t more regulatory scrutiny of BJC Healthcare’s recent merger with Saint Luke’s Health System in Missouri. Earlier this month, they completed their merger to create BJC Health System, an integrated academic health system that boasts $10 billion in revenue and operates 24 hospitals.

The two systems sit on opposite sides of Missouri. BJC is based in St. Louis, and Saint Luke’s is based in Kansas City. With the merger, the system becomes the dominant player between the two big metro areas connected by Interstate 70.

“If you want to go to a hospital and you live between St. Louis and Kansas City, there are many you can go to, but they're all the same,” Abrams says. “They're going to be all the same company.”

“That's my rather bleak picture of the end game here, where the number of hospitals in the country keep on shrinking until we basically have an oligopoly of hospital systems,” Abrams says. “There may be different names on the door, but they're all the same corporation. And that concerns me.”

As a combined system, BJC says it will provide an estimated $1 billion in community benefits. BJC’s leaders say they intend to expand healthcare services and more access to clinical trials.

Anu Singh, managing director at Kaufman Hall, notes that in the past couple of years, some large systems have intensified their focus on their core markets or fast-growing regions, while pulling out of areas where they aren’t dominant players.

“When they've invested into a market to get in there, and the dynamics have changed in that market, …. That they're willing to think about scaling back, first of all, obviously, that's proving there's competition in markets,” Singh says.

Singh says he expects to see more hospital mergers and acquisitions in the coming year, including some involving systems in different areas. But regulatory opposition could impede some deals.

“The regulatory framework is a challenge,” Singh says. “It merits special attention, so that probably could reduce some level of natural fit activity for some organizations. Whether that causes them to look in a different direction or different geography or a different type, I don't know.”

Hal Andrews, president and CEO of Trilliant Health, notes a dichotomy in the federal government when it comes to hospital and healthcare mergers. On one hand, he says the Centers for Medicare & Medicaid Services is pushing for more efficiencies in healthcare, which would suggest mergers as a viable option. At the same time, he says, “The DOJ and FTC are stridently against those mergers, for fear of increasing prices.”

Andrews also notes markets with more competition also have high prices. Trilliant released a report on healthcare trends last year that found lower prices in less competitive markets. And some of the “hospital monopolies” are losing money, he notes.

For Abrams, the concern about hospital mergers relates to the quality of patient care and services.

“One of the reasons that I'm concerned about further consolidation is that these organizations have never been patient-centric,” Abrams says. “And further consolidation gives them so many more ways to be able to keep the money flowing without really changing themselves.”

Abrams sees an industry that is close to becoming “too big to fail.”

“The bigger they get, the less they need to care,” he says. “It's all inconsequential for them.”

Health systems regularly tout the merits of mergers for patients and communities, and Abrams says he’d like to see federal regulators hold organizations to those claims.

“The one thing that the DOJ or FTC should do is to require that they live up to the projections that they made when they announced the merger, how it's going to improve the quality of care and improve accessibility,” Abrams says.