A look back at hospital mergers and acquisitions in 2016

Chris Van Gorder, CEO and president of Scripps Health in San Diego, predicted in early 2016 that the industry would see a large number of mergers and acquisitions this year as well as attempts by the Federal Trade Commission to block them. He was right. 

In the first six months of 2016 alone, Kaufman Hall identified 52 hospital and health system transactions, an increase of 6.1% from 49 transactions recorded in the first half of 2015.

Feds block hospital mergers—at least for now

But many proposed deals face obstacles. Both the Federal Trade Commission and the U.S. Justice Department have intervened to block hospital deals in recent months, driven by concerns that too many mergers may wind up having negative impacts on the markets they serve. But it's unclear if the government will continue to be an obstacle for future mergers once President-elect Donald Trump takes office. He has indicated that he wants businesses to practice in a less government-mandated environment.

One expert doesn't think federal scrutiny will abate, however. “There is a history of bipartisan support for antitrust enforcement in healthcare,” Leslie C. Overton, a partner at Alston & Bird and a former Justice Department official, recently told The New York Times. “I don’t think we should expect a wholesale shift, based on the change from Democratic to Republican.”

Edith Ramirez

As far as the FTC's current stance, Edith Ramirez, chair of the FTC, said in January that “competition plays an important role with respect to quality as hospitals compete to attract patients,” and that she was “very concerned about the rapid rate of consolidation among healthcare providers.”

The most recent example was the planned merger between Advocate Health Care and NorthShore University HealthSystem in Chicago, which has turned into a major legal tug of war between the feds and the two hospital systems. After the FTC lost an initial ruling, an appeals court recently allowed the agency's intervention in the deal to move forward. But NorthShore and University Health say they will continue to fight for the merger.

The federal government also intervened in a potential deal between Penn State Health and PinnacleHealth in Pennsylvania. The FTC was successful in getting both parties to that deal to withdraw.

Late last year the FTC blocked 303-bed Cabell Huntington Hospital's proposed purchase of 393-bed St. Mary's Medical Center in rural West Virginia. That case is still being litigated.

Mergers lead to growth of Catholic healthcare organizations

One of the biggest potential deals of this year and 2017 would be between two Catholic healthcare giants. Catholic Health Initiatives and Dignity Health issued a statement in October announcing a nonbinding intent to merge, which would create the nation's largest hospital system by revenue.

These types of deals have led to a dramatic increase in the number of Catholic hospitals across the United States. Indeed, a report released earlier this year by MergerWatch found that the number of Catholic-owned or affiliated hospitals in the U.S. has grown by 22% since 2001, and now comprise about 17% of all acute care beds nationwide.

But the growth of Catholic hospitals has led to disputes between patients and Catholic doctrine that does not endorse many facets of reproductive care. Catholic hospitals obviously do not provide abortions, but few provide common family planning services, such as prescribing contraceptives or allowing surgeons to perform tubal ligation or vasectomies. In some instances, Catholic hospitals may be wary to even provide lifesaving services to a pregnant mother if it may interfere with the viability of the child.

Fears that deals will drive up healthcare costs 

As mergers in the hospital sector continue unabated, so do concerns about their economic impact on healthcare delivery. 

Evidence that mergers between hospitals and healthcare systems hike prices continues to mount. A study released earlier this year suggested that mergers led to prices rising 10% or more, no matter whether they take place in the same or even separate markets.

Dannel Malloy

Such concerns have actually prompted one state to address the issue directly. Connecticut Gov. Dannel Malloy used the state's certificate-of-need laws to place a moratorium on many kinds of mergers earlier this year. Malloy noted that rising healthcare prices and costs were the primary concerns behind his decision.

"With continuing changes in the healthcare industry, it is critical that our state laws ensure that all hospitals continue to thrive, and that the deck is not stacked in favor of fewer than a handful that dominate the marketplace,'' Malloy said in a statement at the time. "We need balance. Fewer healthcare systems mean fewer choices for consumers, and that can dramatically affect both the quality of care and costs."