All are within Geisinger's existing market, said Kevin Brennan, the growing system's finance chief. “They're close and we're already there,” he said.
AtlantiCare would expand Geisinger's foothold in New Jersey, where its health plan entered into a joint venture with Meridian Health System, Wall Township, in 2013. Expansion of its clinical operations and its health plan are central to Geisinger's strategic plan, Brennan said. “We believe there is market opportunity for growth,” he said, created by marketplace changes as private and public insurers test new payment models. That includes Medicare's test of bundled payments and accountable care under the Patient Protection and Affordable Care Act.
AtlantiCare operates one of more than 300 Medicare accountable care organizations created under the law. The merger could also position Geisinger to capitalize on new insurance markets created under the ACA. Brennan said the system would explore entering New Jersey's health insurance exchange with its own provider network.
Larger systems, too, are seeking to bolster their presence in regional markets. The four Texas hospitals owned by Toledo, Ohio-based system Sylvania Franciscan Health were “clearly a factor” in Catholic Health Initiatives' offer to acquire Sylvania, said Kevin Lofton, CEO for the Englewood, Colo.-based system who was in New York for an investor conference this month. The hospital giant entered Texas in 2013 and has aggressively moved to solidify and expand its presence. Texas would account for more than $2 billion in operating revenue once CHI closes its pending deals for four-hospital Memorial Health System of East Texas, based in Lufkin, and Sylvania Franciscan's hospitals in the state.
That would make Texas one of CHI's largest markets, Lofton said. CHI's Texas operations include CHI St. Luke's Health and a joint venture for a hospital with the Baylor College of Medicine, both in Houston. Lofton said the system is seeking to build strong regional systems and is seeking to double the market share of its Texas operations to 16%.
Too little market clout has even scuttled deals, as was the case in January when Ascension Health ended talks to acquire a six-hospital California system. “It's tremendously difficult to be a small system across three markets,” the seller's chief executive said as the deal collapsed.
But with greater consolidation comes the risk of increased leverage to raise prices, which some antitrust experts warn is perhaps more likely as a growing number of medical groups join health systems.
For the hospitals acquired, deals provide access to capital and help buffer the risks amid rapid changes in healthcare markets and policy. Geisinger would bring scale to AtlantiCare's operations that could reduce operating costs and boost capital for investment in technology, services and physicians, said Dominic Moffa, executive vice president for AtlantiCare. Geisinger also offers expertise with managing risks associated with new payment models. Payment models may shift some of insurers' financial risk to providers, as is the case with capitation.
“They bring a 500,000-member heath plan to the table,” Moffa said. “Having that experience of accepting risk and managing risk is very valuable.”