Healthcare Business News
Gene Michalski and Nancy Schlichting
Beaumont President and CEO Gene Michalski dons a Henry Ford cap at an event with Henry Ford President and CEO Nancy Schlichting announcing the systems' plan to merge.

Reform ushers in era of provider, insurer mergers

By Modern Healthcare
Posted: December 22, 2012 - 12:01 am ET

Big and surprising mergers and acquisitions roll out throughout the year, often crossing boundaries that traditionally divided providers and insurers. The historic realignment of the industry is fueled by the healthcare reform law.

In January, Catholic Healthcare West changes its name to Dignity Health and severs formal ties with the Catholic Church to ease its path toward expanding nationally from a footprint confined to California, Nevada and Arizona. In August, the system pays $455 million to buy U.S. HealthWorks, a network of 172 urgent-care and occupational health centers in 15 states.

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Dialysis company DaVita announces in May that it will acquire HealthCare Partners, which operates medical groups and physician networks in California, Nevada and Florida, including three of the 32 accountable care organizations participating in Medicare's Pioneer ACO program. At closing in November, the deal is valued at $4.7 billion, including $3.7 billion in cash.

Ascension Health signs a memorandum of understanding to acquire Marian Health System's 27 hospitals in Kansas, Oklahoma, Wisconsin and Minnesota. Ascension, the nation's largest not-for-profit system, already holds a 50% stake in Via Christi Health, Marian's six-hospital division in Wichita, Kan. Bringing Marian into its fold would raise Ascension's hospital tally past 100.

In October, Trinity Health and Catholic Health East announce they intend to merge, forming what would be the third-largest not-for-profit system by net patient revenue (a combined $11.9 billion in their most recent fiscal years). With no overlap between the systems' markets, the combination would give the merged organization a presence in 19 states from coast to coast.

Privately owned Prime Healthcare, which has specialized in buying and turning around failing hospitals in California, buys five hospitals outside its home state and enters negotiations to buy three more. Prime says the deals are only the beginning of an expansive buying spree.

After months of rumors that Beaumont Health System in Royal Oaks, Mich., would be bought, the system agrees to merge with Detroit-based Henry Ford Health System. The union would bring together eight Southeast Michigan hospitals, including Henry Ford's 773-bed flagship facility and 1,061-bed Beaumont Hospital.

Large health insurers prepare to spend billions to expand their reach in Medicaid managed care—expected to grow significantly as states implement the Patient Protection and Affordable Care Act—and Medicare Advantage. WellPoint agrees to buy Amerigroup for $4.5 billion, and Aetna agrees to pay $5.6 billion for Coventry Health. WellPoint appears poised to close its deal after the U.S. Justice Department in November resolves its antitrust concerns by compelling the sale of Amerigroup's Virginia operations to Inova Health System.

Other systems move to get into the health insurance business, including Detroit Medical Center, Sutter Health and Catholic Health Initiatives, which explain their acquisitions of health plans as part of broader strategies to manage population health.

One insurer's high-profile and unusual purchase of a hospital system in the works since 2011 becomes uncertain. West Penn Allegheny Health System declares it will part ways with Pittsburgh-based insurer Highmark, accusing its buyer of pushing the struggling hospital system into bankruptcy as a new condition of closing the transaction. Highmark takes West Penn Allegheny to court, and in the final weeks of the year the parties remain in talks toward salvaging the partnership.

Hospital merger challenge

While providers say they are driven to get bigger by the business environment and the Affordable Care Act, the Federal Trade Commission fights deals that the government says would give hospitals and physicians the power to unilaterally raise prices.

OSF Healthcare
OSF Healthcare (above) and Rockford Health System (below) decided to drop their plans to combine hospitals.
Rockford (Ill.) Health System drops its deal to join OSF Healthcare, which operates one of Rockford health's two direct competitors, after the FTC wins a preliminary injunction.

Toledo, Ohio-based ProMedica appeals to the 6th U.S. Circuit Court of Appeals after the FTC orders the system to cut loose an eighth hospital acquired in late 2010. The case is the first hospital merger challenge to reach a federal appeals court since the 1990s.

The U.S. Supreme Court hears arguments in the FTC's bid to unwind the acquisition of an Albany, Ga., hospital by the county government agency that owns the other acute-care provider in the city, Phoebe Putney Health System.

Rockford Memorial Hospital
Rockford Memorial Hospital
The FTC also brings what is believed to be the first action against a hospital-physician deal, announcing a settlement that voids certain noncompete agreements between Renown Health and cardiologists who work for two practices the Reno, Nev., system acquired.

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