Atrium Health, Wake Forest Baptist Health and Wake Forest University signed a memorandum of understanding to merge, the North Carolina-based not-for-profit organizations announced Wednesday.
The memorandum kicks off a period of exclusive negotiations as the organizations aim to reach a final agreement later this year.
The deal would combine Charlotte-based Atrium's 42 hospitals and Winston-Salem-based Wake Forest Baptist's seven. The health systems plan to expand Wake Forest University's footprint with a second campus in Charlotte.
Executives said they hope to tap into data for the some 6.8 million residents around their respective networks to better coordinate care. They plan to build a research and population health center in Winston-Salem, among other initiatives.
"Just imagine the powerful possibilities to advance modern medicine by linking breakthrough science directly with our patients in a way that significantly enhances their cognitive and physical functioning—and allows them to live independently for longer," Eugene Woods, president and CEO of Atrium Health, said in prepared remarks.
Dr. Julie Ann Freischlag, CEO of Wake Forest Baptist Health and dean of Wake Forest School of Medicine, emphasized that the providers will make an impact through patient-centered research, population analytics and a next-generation curriculum.
Healthcare executives claim that scale is necessary to boost access to capital, expand service lines, and improve negotiating leverage with suppliers and payers. Meanwhile, economists contend that mergers rarely yield the expected results and typically increase prices.
Few hospital mergers have improved the quality or efficiency of care and most greatly increase healthcare costs, said Barak Richman, a Duke University law professor with expertise in healthcare economics.
"We should learn from our national experiences," he said.
There is opportunity to pair Atrium's clinical programs, including its cancer, pediatric, heart and musculoskeletal services, with Wake Forest's research related to Alzheimer's disease, diabetes, cardiovascular disease and oncology, executives said.
The organizations could coordinate clinical research such as trials for systolic blood pressure intervention, atherosclerosis, youth diabetes and brain health, they said.
Wake Forest School of Medicine receives more than 10,700 applications for 145 medical student slots each year, and features programs for physician assistants, certified registered-nurse anesthetists and doctor of nursing practice students, according to a news release.
Adding a second campus would allow the combined organization to teach nearly 3,200 students, attract top faculty to create new models of care, and offer the largest post-graduate fellowship program for nurse practitioners and physician assistants in the country, executives said.
Through nine months of fiscal 2018, Atrium reported an operating income of $213 million on operating revenue of $4.65 billion, according to Modern Healthcare's financial database. That was up more than 10% from $192.9 million of operating income on operating revenue of $4.45 billion through the same period the year prior. Total expenses only grew by 4.2%.
The health system's non-operating income fell more than 75% over that span, mirroring an industry-wide trend. Atrium has yet to report its year-end earnings.
Well-capitalized health systems have pursued regional expansions anchored by academic medical centers. That includes Atrium, which tried to merge with UNC Health Care but suspended talks in March 2018 following criticism from state officials. Atrium completed its merger with Macon, Ga.-based Navicent Health earlier this year.
Academic institutions like Jefferson Health, the UPMC health system, Beth Israel Lahey Health and Partners HealthCare have expanded their regional footprint. Aacademic medical centers typically have higher costs that can be difficult to integrate, evidenced by deals like the one between University of Arizona Health Network and Banner Health.
Wake Forest Baptist Health saw its operating income fall to $3 million for fiscal 2018 on operating revenue of $2.86 billion. That was down significantly from $85.3 million in operating income on $2.67 billion of operating revenue in 2017.
Total operating expenses increased by more than 10% in 2018. Wake Forest also paid nearly $12 million for High Point Regional Health System last year.
It makes sense to link regional employers into one system, particularly as care moves closer to home, said Neil Olderman, a partner in Drinker Biddle & Reath's healthcare practice. Affiliating with a well-known academic institution can also build trust, particularly among the aging population, he said.
"Pairing a strong hospital system with an academic leader can move markets," Olderman said.