Hospital M&A activity is expected to increase this year — and the sector has already begun 2024 with a bang.
On New Year’s Day, two Missouri health systems — St. Louis-based BJC HealthCare and Kansas City-based St. Luke’s Health System — officially completed their merger. The deal, which was first announced last May, combines the two organizations into one integrated academic health system.
The merger was one of the biggest hospital M&A deals announced last year. The combined health system comprises 28 hospitals and hundreds of clinics serving 6 million people across Missouri, Illinois and Kansas. It is expected to generate $10 billion in annual revenue.
The combined system will operate as BJC HealthCare in its eastern region and as Saint Luke’s Health System in its western region. Patients won’t experience any immediate changes to their care, provider communication or health data access, according to the press release.
The new system is led by BJC CEO Richard Liekweg, while Saint Luke’s CEO, Melinda Estes, has entered into retirement.
“From the moment we first explored the concept of an integrated system, we have had a clear vision to improve healthcare in the Midwest,” Liekweg said in a January 1 statement. “By working together to deliver extraordinary clinical care and becoming the region’s premier destination to practice medicine, we will enhance patient care and accelerate medical breakthroughs. Today, with our 44,000 committed, hard-working clinicians and employees, we take the first step in making that vision a reality.”
These days, leaders from across the healthcare industry aren’t very surprised by mega-mergers in the hospital world.
Russ Richmond — CEO of Laudio, a startup selling technology to reduce nurse burnout — said that the BJC-Saint Luke’s deal is “the first of many” mergers we’ll see in the hospital sector this year.
“These mergers have to continue — it’s the only way to drive scale for both operational efficiency and contracting. The benefits of scale come in multiple ways, including being able to make investments in one corporate center and distribute them across other operating assets. These investments will come in the form of new technology, devices and more – ensuring each operating facility is as productive as possible,” he explained.
Additionally, this merger allows BJC and Saint Luke’s to scale in terms of payer negotiations, Richmond added. With an increased presence in the Midwest, the new health system will become “an even greater force to be reckoned with” when it comes to getting preferential rates from payers, he noted.
The newly combined health systems will also be able to double down on their owned health plans and target Medicare Advantage, which Richmond said will provide a more consistent revenue stream instead of relying on episodic hospital visits. As hospital M&A activity continues to heat up, “payvider” status will be a top driver in regional hospitals seeking merger opportunities to bolster their profitability, he predicted.
Another healthcare executive, Trilliant Health CEO Hal Andrews, explained why he is unsurprised by the merger.
“In an era of increasing costs, soft demand and increased regulatory burdens, the merger of BJC and St. Luke’s is unsurprising for the hospital industry. What distinguishes this merger is the potential to leverage the ‘best of breed’ clinical, strategic, operational and financial processes of two health systems viewed favorably by ratings agencies. With a clear focus on eliminating redundancies to create efficiencies of scale, the combination could demonstrate the societal benefits of these transactions,” Andrews declared.
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