Consolidation in the healthcare industry is seen as almost inevitable. Yet, a number of big deals, involving both for-profit and nonprofit health systems, have recently fallen apart amid pushback from regulators and skepticism from researchers, who note a lack of evidence about long-term quality and cost impacts.
It has been a long winter in Boston — especially for Massachusetts’ largest health system, Partners HealthCare, the parent of the Harvard-affiliated Massachusetts General Hospital and Brigham and Women’s. Partners saw plans to acquire three suburban hospitals collapse, after crafting a deal with the former attorney general that included capping prices at inflation for six years.
[Also: Big deals in 2015 so far]
Competing health systems, academics and the Massachusetts Health Policy Commission all raised concerns that the acquisitions would cement Partners’ dominance and large reimbursements, and the new attorney general, Maura Healey, opposed the settlement agreement. A local judge ultimately rejected it.
Partners has since pulled its bids for the hospitals. But now, under new CEO David Torchiana, MD, Partners is set to acquire the Harbor Medical Associates, a 70-physician practice in the southern coastal suburbs.
While Healey does not have grounds to bring an antitrust suit, she’s urging the health system to reconsider, as is the Health Policy Commission, the independent state agency charged with tracking the state’s law indexing healthcare cost growth to inflation.
The ability to get into high-quality successful assets really requires a more creative approach.”
Elsewhere in New England, Tenet Healthcare also saw a deal fall apart. The Dallas-based for-profit chain spent two years working to acquire the five hospital Eastern Connecticut Health Network but decided not to move forward after the Department of Public Health's Office of Health Care Access issued 47 requirements, including continuing all jobs, pay levels and services for five years.
The “conditions proposed by state regulators would have impeded our ability to restore the hospital’s long-term operational and financial stability,” said Tenet CEO Trevor Fetter. “Moreover, we were unable to achieve any level of certainty regarding either the timing or outcome of the regulatory process.”
Across the county in California, privately held Prime Healthcare has withdrawn its $843 million plan to takeover Daughters of Charity, a six-hospital health system that is hemorrhaging $10 million per month. Prime said the 300 conditions imposed the attorney general, including included keeping all the hospitals open for 10 years, were untenable. "In essence, the attorney general is telling Prime Healthcare to operate the hospitals exactly as DCHS has and expect different results,” said Troy Schell, general counsel for Prime.
[Also: Prime abandons Daughters deal]
The Federal Trade Commission has proved more than willing to sue to block hospital mergers, succeeding in its first-ever challenge to a health system acquiring a physician group when it stymied the integration efforts of St. Luke's Health System in Idaho.
Statistically, regulators mostly leave healthcare M&A alone. The FTC has challenged fewer than 1 percent of recent hospital mergers or acquisitions, and dozens of deals are going forward — from for profit takeovers by the likes of HCA, Community Health Systems and LifePoint, to nonprofit regional consolidation. Among them are a merger between Thomas Jefferson University Hospitals and Abington Health, which will create greater Philadelphia’s largest health system.
But there’s also a new trend shaping healthcare – the joint venture.
Tenet in particular is plying this idea. While “turnaround acquisition business market is still very much there,” as CEO Fetter said, “the ability to get into high-quality successful assets really requires a more creative approach.”
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In Alabama, Tenet has inked a joint venture with Baptist Health System to operate the four Baptist' hospitals and Tenet’s Brookwood Medical Center.
Tenet is also expanding in Arizona through a joint venture with Dignity Health and Ascension Health, the largest Catholic and nonprofit health system in the country. Tenet will be the majority partner with management responsibility for operations of three hospitals in the Carondelet Health Network.
“From our perspective, this is a unique opportunity to extend our presence beyond Phoenix into the attractive Tucson market, and it’s consistent with our strategy to create new, innovative models for patient care,” Fetter said.
Tenet is also exploring “strategic options” for its hospitals in Atlanta and North Carolina.