Hospitals

Provider interest in consolidation continues with two new merger announcements  

Though there has been a slew of failed merger plans in recent months, providers' interest in consolidation has not ebbed. Midwest-based Beaumont Health and Spectrum Health announced they are exploring a merger, as did Rush Health Systems and Ochsner Health, which are located in the South.

Two new health system merger deals have been announced in the past week, adding to the already robust activity taking place in the healthcare mergers and acquisitions arena.

The latest health systems to explore merger deals are Midwest-based Beaumont Health and Spectrum Health, as well as Rush Health Systems and Ochsner Health, which are located in the South.

Southfield, Michigan-based Beaumont Health and Grand Rapids, Michigan-based Spectrum Health announced last Thursday they have signed a letter of intent to explore creating a new health system. If the merger moves forward and closes, it will create a $13 billion, 22-hospital system with 305 outpatient locations and more than 64,000 employees.

The new system — to be led by Tina Freese Decker, president and CEO of Spectrum Health — will operate dual headquarters in Grand Rapids and Southfield. John Fox, Beaumont Health’s president and CEO, will help ensure a successful transition, after which he plans to leave the organization.

“Beaumont Health and Spectrum Health are leaders in our respective markets, and by bringing together our organizations to create a new system, we have the opportunity to deliver greater value in high-quality and affordable healthcare to our communities,” Freese Decker said, in a news release. “Together, we can provide a more personalized experience that prioritizes individuals’ health while also attracting and retaining great talent to our vibrant communities.”

This is Beaumont Health’s third attempt at a merger in the last three years. First, the health system tried to put together a deal with Akron, Ohio-based Summa Health, which was ultimately called off in May 2020. Then, last June, Beaumont and Advocate Aurora Health, which has dual headquarters in Downers Grove, Illinois, and Milwaukee, signed a letter of intent to merge. But amid concerns raised by Michigan lawmakers and Beaumont doctors, these plans also unraveled.

In its latest M&A endeavor, Beaumont Health hopes to complete the merger process with Spectrum — which is subject to the execution of an integration agreement and applicable regulatory reviews — by this fall.

In the South, Meridian, Mississippi-based Rush Health Systems and New Orleans-based Ochsner Health have signed a shared mission agreement to merge. The agreement, also announced last Thursday, builds on an existing strategic partnership between the two launched in 2019.

The merger will add seven hospitals to the 35 currently operated by Ochsner Health. It will also add more than 30 clinics and 250 staff and contracted physicians to Ochsner’s roster.

“We have recently worked with Ochsner on several initiatives, including the implementation of Epic, a best-in-class electronic medical records system, at our hospitals and clinics,” said Larkin Kennedy, president and CEO of Rush Health Systems, in a news release. “Today’s news means that we are taking the next step in our partnership.”

After the merger, Rush patients will get expanded access to specialty and sub-specialty services, including cardiology, cardiovascular surgery, neurology and highly specialized stroke care, as well as access to Ochsner’s clinical research network.

Further, employees of Rush Health Systems will see an increase in their minimum wage to $12 per hour.

The move comes less than a year after Ochsner merged with Louisiana-based Lafayette General Health, following which it experienced a “modest rebound in the first quarter of 2021,” Modern Healthcare reported. The health system posted $15.1 million in operating income for the quarter, a 1% margin. The most recent financial information available for Rush Health Systems shows it posted annual revenues of $41 million in 2019, but information for how the system fared during the pandemic was not publicly available.

Rush Health Systems will become Ochsner Rush Health when the merger is complete in mid-2022, following regulatory approvals.

There have been several highly touted merger announcements in the healthcare industry in recent months, and this may be due to the fact that the Covid-19 pandemic deferred many discussions that had been developing in 2019 and early 2020, said Neil Rao, partner at McKinsey & Co., in an email.

“…many health systems are revisiting their long-term strategic plans after the pandemic and have a greater appreciation for the value of scale, geographic diversification and revenue diversification after observing those health systems who were most resilient with respect to their business and financial performance over the last 12-18 months,” he said.

But, despite the many announcements, several mergers have not panned out, including Sentara Healthcare and Cone Health and CommonSpirit Health and Essentia Health.

Rao believes these failed transactions will encourage those health systems exploring mergers to spend more time on things like board engagement, cultural alignment and addressing stakeholder concerns — like clinicians’ concerns, for example — before announcing deals publicly.

Photo: AndreyPopov, Getty Images

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