Cross-market mergers and acquisitions are becoming more prominent as health systems diversify their portfolios, strengthen bargaining power and pursue further economies of scale amid challenging financial headwinds.
The latest example of this trend is Marshfield (Wis.) Clinic Health System's proposed merger with Sioux Falls, S.D.-based Sanford Health. The transaction would create a 56-hospital system with two fully integrated health plans and more than 56,000 employees.
A combined Sanford and Marshfield would be slightly smaller in size to Advocate Health, a 69-hospital system formed by the combination of Charlotte, N.C.-based Atrium and Advocate Aurora, dually headquartered in Milwaukee and Downers Grove, Ill., in 2022.
Cross-market mergers such as these suggest that larger systems are needed to provide care and offset the power of the payers in the current environment.
Health system mergers are increasingly about leverage when negotiating with payers, rather than significant cost savings or increasing market share.
In January, St. Louis-based BJC HealthCare and Kansas City, Mo.-based Saint Luke's Health System merged into a 28-hospital system.
The transaction was not about reducing costs — since the two systems have been part of a buying collective for a decade —- and not about a rapid gain in market share, since St. Luke's and BJC will largely stick to their respective areas, Charlie Shields, CEO of Kansas City, Mo.-based University Health, told the Kansas City Business Journal. Instead, he argues, the merger, and similar ones like it, aims to leverage a better seat at the table when negotiating care rates with payers.
On the acquisition side, health systems are also pursuing opportunities to expand into new markets or states.
Greenville, S.C.-based Prisma Health aims to enter a new state by acquiring Blount Memorial Hospital, a 304-bed community hospital in Maryville, Tenn.
Prisma President and CEO Mark O'Halla said the deal represents an "exciting new chapter" as healthcare shifts to a "multi-region model" and the number of systems operating in multiple states rapidly increases.
On July 1, Kansas City-based University of Kansas Health System acquired its first hospital in Missouri. Liberty (Mo.) Hospital "was a perfect opportunity to partner with another independent hospital in a prime area for our health system," KU Health President and CEO Bob Page told Becker's. "We also have that cultural compatibility, so it was pretty much a no-brainer for us to pursue."
"Cross-market" mergers involve health systems in different geographic areas, maintaining competition for patients since they serve distinct populations. However, they can affect competition if the merging systems share payer and employer customers and compete to be in the same networks.
The Federal Trade Commission has included cross-market theory questions in merger investigations but has not formally challenged such mergers based on this theory of competitive harm, according to McDermott Will and Emery.