The dealmaking between regional and national heavyweights underscores the maneuvering across the industry as insurers, hospitals and medical groups adjust to historic changes to regulation and markets amid intense pressure to cut costs.
Failed deals are a symptom of the degree of activity and, in some cases, the willingness to entertain unlikely combinations.
PeaceHealth, a system with eight hospitals in Oregon, Washington and Alaska, sought to merge with Catholic Health Initiatives' seven-hospital Pacific Northwest division under a new company. “We knew it was bold,” said Peter Adler, chief strategy officer for PeaceHealth.
The proposal—announced in August and suspended in April—arose as an opportunity that fit within PeaceHealth's strategic plan to try to better integrate care and lower costs, he said. Last week, PeaceHealth unveiled an agreement with University of Washington Medicine that will direct referrals between the organizations.
“A lot of these are not going to work out,” said Toby Singer, a healthcare attorney who specializes in healthcare mergers and antitrust with Jones Day in Washington. That's not because the rate at which deals fall apart has increased. Instead, more interest and more negotiations will lead to more successful—and unsuccessful—deals, she said.
Prospective partners begin the work hammering out critical merger details with little information about each other. Only during negotiations do governing boards and executives discover enough about the others' culture and operations to make an informed decision. Public reaction once the deal is announced may also influence progress.
“It's a wonder that anything ever gets done,” Singer said. Nonetheless, the pace of deals between multihospital systems appears to have accelerated, she said.
Health reform creates a greater need for capital, and larger, more geographically diverse systems may be able to borrow more cheaply to fund capital investments, Singer said.
Officials with Catholic Health Initiatives are considering deals that they might have previously overlooked. The company is positioning itself to better manage population health and prepare for more financial risk under new payment contracts with insurers and employers, said John DiCola, the Englewood, Colo.-based system's senior vice president of strategy and business development. One-quarter of the system's capital budget this year is allocated to strategic growth and joint operating agreements.