LifePoint Health signed a definitive agreement to acquire Kindred Healthcare, the for-profit health systems announced Monday.
The transaction would create a massive national health system that combines LifePoint's 87 hospitals with Kindred's vast post-acute footprint. In addition to the transaction, LifePoint plans to invest $1.5 billion in the new entity over the next three years, the organizations said in a news release.
"Kindred's focus on healing and hope, provided through its long-term acute care hospitals, rehabilitation centers and most recently its behavioral health services – an important and growing need across the country – is highly complementary to the current LifePoint network," LifePoint CEO David Dill said in prepared remarks.
The deal is expected to close in the fourth quarter.
The $1.5 billion investment aims to boost workforce development, particularly nurses and frontline staff, spur capital projects and improve access by upgrading the company's technology and equipment, executives said.
LifePoint has hospitals in 29 states as well as more than 50 affiliated post-acute providers and 35 outpatient facilities. The Brentwood, Tenn.-based private-equity backed hospital chain has around 53,000 employees.
Kindred operates 62 long-term care hospitals, 25 inpatient rehabilitation facilities, more than 100 acute rehabilitation facilities and two behavioral health centers. The Louisville, Kent.-based company has around 24,000 employees. The health insurer Humana and two private equity companies divided and bought Kindred's long-term care and home healthcare divisions in 2018.
The acquisition is not being financed with any funds that have been received as a result of the Coronavirus Aid, Relief and Economic Security Act and related legislation, according to the release.
While regulators have been more critical of horizontal transactions, such as when hospitals buy other hospitals, vertical consolidation like the proposed deal between LifePoint and Kindred have typically drawn less scrutiny.
"LifePoint and Kindred have an early opportunity to align and integrate their human capital systems, which will improve their ability to organize their organizational structure, shape future desired culture and assess and leverage talent," said Jennifer Perry, managing principal at consultancy FMG Leading. "Too many merged healthcare organizations skip this step and see their integration plans falter."
The Federal Trade Commission updated its vertical merger guidelines last year for the first time since 1984. But healthcare antitrust experts said that the guidelines were too ambiguous to prevent anticompetitive vertical consolidation. For instance, health systems have incrementally acquired physician practices via small transactions that don't typically trigger regulatory oversight.
Some argue that vertical integration can boost quality and lower healthcare costs through improved economies of scale. Aligning incentives across providers, insurers, suppliers and other stakeholders could better coordinate care, they contend.
Others claim that large, integrated healthcare companies can stave off competitors, which can increase costs and lower quality.
It has been an area of focus for the FTC and Justice Department, which are gathering more data on vertical mergers and acquisitions.
"Vertical integration represents one of the most important changes in how healthcare services are delivered, and we need to pay attention to the implications," Gary Young, director of the Center for Health Policy and Healthcare Research at Northeastern University, told Modern Healthcare in May.
Both LifePoint and Kindred are privately held companies that do not disclose their financial statements.