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June 02, 2021 01:24 PM

Sentara Healthcare, Cone Health end merger plans

Tara Bannow
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    Sentara CEO Howard Kern

    Sentara Healthcare and Cone Health on Wednesday became the latest health systems to walk away from plans to form a sizable, multistate system.

    The not-for-profit systems didn't share much detail on what killed the proposed deal to create a 17-hospital system with more than $11 billion in combined revenue, but there had been hints of discord since it was announced in August 2020. Not only did two of Cone's top executives announce plans to leave, public comments suggested some Cone patients viewed the deal as an out-of-state takeover.

    Ultimately, the systems said in joint statement their respective communities require support and commitments that are better served by Cone and Sentara remaining independent. The boards of both systems mutually agreed to end affiliation plans late last week.

    "The decision was a difficult one, but both organizations remain dedicated to advancing our common goal of providing outstanding care for our respective communities," the systems said.

    Even though Sentara and Cone worked hard to brand the deal as a merger, Norfolk, Va.-based Sentara is more than double Cone's size and more financially stable. Sentara has 12 hospitals and posted a strong, 6.2% operating margin in calendar 2020 on almost $8.9 billion in revenue. Five-hospital Cone, based in Greensboro, N.C., posted a 2.7% operating margin in its fiscal 2020, which ended Sept. 30, 2020, on $2.3 billion in revenue.

    Public comments submitted to North Carolina's attorney general showed some in Cone's coverage area, including some physicians, worried the deal would strip resources away from their local system and centralize care in Virginia. They also feared it would drive up prices.

    "Of course there are economies of scale, but I am concerned Sentara will drain our community of its prized health system to prop up its own financial needs," wrote Dr. Kurt Lauenstein, a family physician who works at Cone in Greensboro.

    Sentara CEO Howard Kern was set to lead the combined organization, while Cone's CEO, Terry Akin, had planned to find a new job once the deal was completed. A Cone spokesperson said the system is not ready to say whether Akin will stay on as CEO now that the merger isn't happening. Cone's former chief financial officer, Jeff Jones, stepped down in February. Both he and Akin said their departures were not related to the merger.

    Cone and Sentara had planned to close the deal in early to mid-2021. It would have needed approval from North Carolina's attorney general and the Federal Trade Commission. North Carolina's insurance commissioner had already signed off on the transaction, allowing Sentara to oversee Cone's health plan.

    The divide between Cone and Sentara's financial positions grew wider in their most recent financial statements. Cone would have lost money in the six months ended March 31 if not for the almost $27 million in federal stimulus grants it recorded during the period. Including the grants, it posted a 2% operating margin on $1.3 billion in revenue.

    Sentara went the opposite direction, posting an 8% operating margin in the quarter ended March 31, with $197 million in operating income on $2.5 billion in revenue. The system did not disclose whether it recorded stimulus grants in the quarter.

    Sentara and Cone join a list of high-profile health system mergers that were called off within the past year.

    Sanford Health called off plans to merge with Intermountain Healthcare in December one week after Sanford's CEO stepped down amid a kerfuffle over wearing face masks. That deal would have formed a 70-hospital system with $15 billion in revenue.

    In October, Beaumont Health and Advocate Aurora Health announced they were ending plans to form a 34-hospital, $17 billion system.

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