Why some planned hospital mergers didn’t come together

Even as the hospital industry is seeing more mergers and acquisitions, some analysts note that it’s not an easy environment to complete a deal.

Federal regulators under President Biden’s administration have given hospital deals more scrutiny. The Federal Trade Commission has opposed some hospital mergers on the grounds that they would reduce competition, leading to higher prices and reduced services for consumers.

In addition, the FTC has also said that the commission is looking for more information from organizations pursuing mergers and acquisitions, which suggests longer and more complex reviews before signing off on deals. Even some states are looking more carefully at hospital consolidations.

Kevin Holloran, senior director for Fitch Ratings, noted the heightened attention from regulators.

“We're still living in an environment right now, at a federal and even a state level … that is kind of anti-merger, if you will,” Holloran told Chief Healthcare Executive® in a recent interview. “And I'm not saying it's good or bad, just that it is what we're operating under.”

There were 65 announced hospital mergers and acquisitions in 2023, up from 53 in 2022. Analysts say financial distress is driving deals, and as some hospitals continue to face financial headwinds, more organizations may look to find partners. Analysts expect to see more hospital deals in 2024, out of necessity or due to strategic opportunity.

Still, analysts expect hospitals are likely to find less opposition in pursuing deals with health systems that are outside their markets, analysts say. That’s one lesson that can be gleaned from some hospital deals that were later dropped.

Here’s a rundown of proposed hospital mergers that have been abandoned over the past year. Some encountered resistance at the federal and local levels, but some deals were dropped for reasons other than regulators. At minimum, they show that even at a time when more hospital mergers are taking place, success isn’t assured.

Sanford and Fairview

Sanford Health had planned to merge with Fairview Health Services to form a system with more than 50 hospitals and 600 sites of care. But the organizations met resistance from some elected officials and they pulled the plug on the deal last summer.

Bill Gassen, Sanford’s president and CEO, expressed disappointment when he announced the deal wouldn’t happen in July 2023.

“The significant benefits we identified for a combined system with Fairview Health Services compelled us to exhaust all potential pathways to completing our proposed merger,” Gassen said in a statement. “However, without support for this transaction from certain Minnesota stakeholders, we have determined it is in the best interest of Sanford Health to discontinue the merger process.”

Minnesota legislators raised concerns about an out-of-state organization controlling the University of Minnesota Medical Center, which is operated by Fairview. Sanford is based in South Dakota.

Mary Turner, a University of Minnesota regent and president of the Minnesota Nurses Association, told MPR News that she was “relieved” the deal was dropped, saying, ““I don’t feel that it was in the best interest of the communities across Minnesota.”

Minnesota recently enacted a law giving the state’s attorney general more power in reviewing hospital deals, including seeking court approval to block transactions.

Essentia Health and Marshfield Clinic Health System dropped their planned merger in January.

Essentia and Marshfield Clinic

Two midwestern systems, Essentia Health and Marshfield Clinic Health System, were poised to combine, but leaders announced in January that the merger wouldn’t be happening.

In a joint statement, the two systems said, “We will continue to seek opportunities for collaboration as two mission-driven, integrated health systems dedicated to sustainable rural health care.”

Tony Matt, a spokesman for Essentia, said in a statement to WSAW-TV that financial considerations were a factor. “Essentia’s finances are strong, and it is imperative we maintain that stability so we can continue investing in and enhancing care for our patients,” Matt said.

Marshfield Clinic has been struggling financially. Within days of the news that the merger had been dropped, Marshfield Clinic announced the furloughs of 3% of the system’s staff.

Last week, Marshfield Clinic announced that those who had been furloughed are being terminated, and their employment will end in early May, WSAW-TV reported.

UnityPoint Health and Presbyterian Healthcare Services explored a merger of the two systems, but announced last fall they had dropped those plans.

UnityPoint and Presbyterian

In early 2023, UnityPoint Health and Presbyterian Healthcare Services said they were exploring a merger that would lead to a combined system that would operate more than 40 hospitals. But in October, the health systems said they wouldn't be coming together after all.

In a joint statement, the systems said, “After significant planning and consideration, the two organizations will no longer be pursuing the transaction.”

The larger UnityPoint, based in Des Moines, operates 32 hospitals in Iowa and parts of Illinois and Wisconsin. Presbyterian, based in New Mexico, operates nine hospitals.The two systems didn’t disclose specific reasons about why the merger isn’t happening.

Sally Gray, chairwoman of UnityPoint Health’s board of directors, simply said that the merger wasn’t the right move for the system.

“We believe this decision allows us to better meet the needs of our patients, team members, communities, and key stakeholders,” Gray said in the statement. “As we move forward, UnityPoint Health is focused on identifying new, innovative ways to deliver low-cost, high-quality care to those we serve.”

Shortly after disclosing the merger plans were dropped, UnityPoint announced the departure of CEO Clay Holderman. Scott Kizer was named the new president and CEO of UnityPoint.

Dale Maxwell, Presbyterian’s CEO since 2016, announced last month that he plans to retire on July 31, the Rio Rancho Observer reported.

SUNY Upstate and Crouse

SUNY Upstate Medical University had planned to acquire Crouse Health System in Syracuse, N.Y., but the deal encountered strong FTC opposition.

SUNY Upstate operates the 715-bed Upstate University Hospital, which includes Upstate Golisano Children’s Hospital. Crouse, a nonprofit hospital, is licensed for 506 acute care beds and serves a 15-county area in central and northern New York.

The systems filed an application with the New York Department of Health for a Certificate of Public Advantage in July 2022. Generally, the FTC has opposed such state certificates, saying they don’t protect the public interest and shield organizations from antitrust laws. The FTC also said the deal would hurt consumers, since SUNY Upstate and Crouse Health are competing for patients in the same region, spurring them to provide better services and prices.

Facing a tough fight, SUNY Upstate and Crouse announced in February 2023 that they were dropping their planned consolidation.

In a statement, Mantosh Dewan, SUNY Upstate’s president said, “This is not the outcome we anticipated when we started down this road, but it is the prudent decision at this time and is a result of the economic and operational headwinds health care is facing, not just here in Syracuse, but nationwide.”

Elizabeth Wilkins, director of the FTC’s office of policy planning, said the deal would have led to higher prices and reduced quality and access to care.

“It is very good news for patients and healthcare workers in upstate New York that this proposed merger is not going to happen,” Wilkins said.

Sale of San Remon

Tenet Healthcare Corp. and John Muir Health share ownership of San Ramon Regional Medical Center in California. Tenet is the majority owner of San Ramon Medical, and John Muir proposed taking full ownership in a $142.5 million deal.

But the FTC took legal action to block the deal last November. The FTC argued that if the deal was finalized, John Muir would control more than 50% of the inpatient hospital market along the I-680 corridor, potentially raising the already high healthcare costs in the region.

Tenet and John Muir Health said in December that they were dropping their plans. Henry Liu, the FTC’s bureau of competition director, hailed the end of the sale as a major victory, saying it ensures “patients in California continued access to quality, affordable health care services.”

A nonprofit system, John Muir Health operates two hospitals. Mike Thomas, president and CEO of John Muir Health, said in November that the deal “would benefit our community, caregivers and patients.”

Tenet, the for-profit system based in Texas, has completed the sale of six California hospitals in recent weeks.