Dive Brief:
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Appalachian Regional Healthcare and Highlands Health System, both based in Kentucky, announced that they plan to merge by early next year.
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The agreement includes moving 192-bed Highlands Regional Medical Center into the Appalachian Regional Healthcare system and renaming it ARA Regional Medical Center, which would give the system 12 hospitals in Kentucky and West Virginia. The merger also includes Highlands outpatient services and facilities in Floyd, Johnson, Martin and Magoffin counties.
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In other hospital merger news involving the Appalachian Mountains area, the Tennessee Department of Health approved a merger plan between Mountain States Health Alliance and Wellmont Health Systems to become a new entity, Ballad Health. Virginia is expected to make its decision on the proposal by the end of the month.
Dive Insight:
Whenever there’s talk of mergers and acquisitions of health systems, especially rural facilities, there’s always community concern about a large health system swooping in from another part of the country. However, the Appalachian Regional Healthcare/Highlands Health System keeps ownership in Kentucky.
Most hospitals are dealing with sagging reimbursements and payer policies that are moving profitable service lines to outpatient facilities, but the problem is especially problematic for rural hospitals. The National Rural Health Association said 82 rural hospitals have closed since 2010 and warned that 673 additional facilities, more than one-third of rural hospitals, are “vulnerable and could close.”
Reimbursement cuts and bad debt increases have badly wounded rural hospitals and caused rural systems to look for merger and acquisition solutions.
The Appalachian Regional/Highlands merger isn’t the only one in Appalachia. Mountain States Health Alliance and Wellmont Health Systems are also looking to merge after years of competing in Virginia and Tennessee. If that merger goes through, it would create a healthcare monopoly in 13 counties under the name Ballad Health.
After years of battling one another, Mountain States and Wellmont decided that efficiency was the better long-range plan. What sets the Mountain States/Wellmont apart is that the companies are hoping to sidestep possible Federal Trade Commission (FTC) opposition to the merger. Instead, the two companies are using a different legal avenue called a Certificate of Public Agreement. This move allows Virginia and Tennessee to decide whether the merger is in the public’s interest.
Tennessee recently gave its OK to the merger plan and Virginia's decision is expected by the end of the month. In announcing its approval, the Tennessee Department of Health said, “For the state to consider and act on the proposal for Mountain States and Wellmont to merge, the systems agreed through the legislative process to meet a clear and convincing standard that their merger would create a public benefit to the residents of Northeast Tennessee that would outweigh any downsides of a monopoly of services.”
Rural hospitals are likely watching the Mountain States/Wellmont merger closely and may decide to follow them in sidestepping the FTC with their own mergers.