Health systems aim to leverage the reputation of well-known academic institutions as they build out regional mega-systems.
The latest example is a deal announced last week between Atrium Health, Wake Forest Baptist Health and Wake Forest University, which would form a 49-hospital system with an expansive footprint in the North Carolina area. The goal, in part, is to give Wake Forest’s research a new testing ground across Atrium’s 900-facility network. They also plan to add a second medical campus in Charlotte, where Atrium is based, as well as expand its population health efforts in Winston-Salem.
“Pairing a strong hospital system with an academic leader can move markets,” said Neil Olderman, a partner in Drinker Biddle’s healthcare practice.
Regional mega-systems are taking shape across the country, many anchored by an academic institution’s prestige. Some are building around their universities and academic affiliations through targeted acquisitions, including Philadelphia-based Jefferson Health, UPMC in Pennsylvania, Lifespan in Rhode Island, and Beth Israel Lahey Health and Partners HealthCare in Massachusetts. Others—like SSM Health in its deal with St. Louis University Hospital and Nashville-based HCA’s purchase of Memorial University Medical Center in Savannah, Ga.—are acquiring academic centers. Either way, consolidation among AMCs is poised to grow, experts said.
“Physician availability will be at a crisis point and partnering with a great academic medical center on the front end makes a lot of sense,” said Ken Marlow, chair of the healthcare department at law firm Waller Lansden Dortch & Davis. AMCs also benefit from new economies of scale, access to capital and a broader referral network, he added.
Many academic medical centers are looking for partners as they can’t rely on loftier payment rates to cover up their higher cost structures. But these types of tie-ups are often capital-intensive and an AMC’s mission can clash with those of their partners. Notably, SSM’s proposed affiliation with Oklahoma University Medicine in 2017 fell through. A year later, OU ended up buying out HCA’s ownership stake of its Oklahoma City-area hospitals. The University of Arizona Health Network and Banner Health combination proved to be costly and cumbersome as the systems struggled to reconcile added layers of bureaucracy, among other issues.
In a rare move, Vanderbilt University and Vanderbilt Medical Center split, giving its healthcare network more freedom both from an operating and financing perspective, the medical center claimed.
One of the greatest challenges for academic and health system tie-ups is reconciling a focus on research versus operating margins, Marlow said, a sentiment that is supported by a 2017 JAMA paper. “That is something they have to work through,” he said.
AMCs are defined by their specialty care but often perform lower-acuity care in higher-cost settings, said Gurpreet Singh, a partner at PwC and leader of its health services sector.
“I expect these AMC and health system combinations to have a bimodal operating model, adding digital and virtual capabilities so people don’t have to come into the hospital,” he said. Large repositories of clinical data can offer a broader view of the patient, Singh added.
“Just imagine the powerful possibilities to advance modern medicine by linking breakthrough science directly with our patients,” Eugene Woods, CEO of Atrium Health, said in prepared remarks.
To have regional employers link into one system makes sense, Drinker Biddle’s Olderman said, especially as care moves closer to home. An affiliation with an academic institution can also build trust, particularly among the aging population, he said.
Many regional players are looking across state lines as they chart their expansion, experts said. Meanwhile, state attorneys general and federal regulators will likely ramp up their scrutiny, as economists claim few hospital mergers have improved quality and efficiency, and typically raise prices.
Last year, North Carolina officials, including the attorney general and state treasurer, expressed concern that Atrium’s proposed merger with UNC Health Care would result in price hikes for consumers. Atrium ultimately suspended the talks in March 2018 but did not specify why the deal didn't go through. It has since completed a merger with neighboring health system Navicent Health, based in Macon, Ga.
Correction: The original version of this article stated that North Carolina officials rejected Atrium's proposed merger with UNC Health Care.