Fairview Health and HealthEast Care System, which serve the Twin Cities metropolitan area in and around Minneapolis and Saint Paul, Minnesota, announced they will merge.
Although a formal deal expected in spring will require FTC approval, current Fairview president and CEO James Hereford will lead the combined organization, which will control 11 hospitals and 56 clinics, the Star Tribune reported.
- The combined organization will control about 34% of the local market share, moving it past Allina Health System and its 26% market share, the Minneapolis/Saint Paul Business Journal reported.
The combination of Fairview and HealthEast makes sense in a lot of ways. Fairview has been exploring potential mergers with health systems for several years and HealthEast just suffered an operating loss of $5 million in the first quarter of fiscal year 2017 after it posted a loss of $7.9 million in fiscal year 2016. There also is not much overlap in their areas of operation or in the services they deliver.
Hospital merger and acquisition activity continued at a rapid pace heading into 2017, according to a Kaufman Hall analysis. Transactions dipped slightly to 102 from an all-time high of 112 in 2015, but are still occurring much more frequently than they were several years ago. Transactions rose more than 33% from 66 in 2010, when the ACA was signed, to 88 in 2011 though recent research shows consolidation was a trend before the ACA was signed into law.
Health systems are not just merging with other health systems. Provider-sponsored health plans have seen a resurgence in recent years. The number of provider-sponsored health plans increased from 94 in 2010 to 106 in 2014, according to analysis by Gunjan Khanna, a McKinsey & Company partner based in Pittsburgh. Patient enrollment in provider-sponsored health plans increased from 12.4 mill to 15.3 million over the same time.
Fairview is one provider organization that has launched or acquired a health plan in recent years. The health system announced last year that it had acquired PreferredOne, a health plan serving the Upper Midwest.
Financial motivations are not the only reason health systems are looking into mergers and acquisitions, according to Kaufman Hall managing director Patrick Allen. Consumerization of healthcare, increased reliance on outpatient rather than inpatient services, and the shift toward value-based care are all factors in recent merger and acquisition trends.
While the trend toward consolidation will likely continue, the jury is out on whether it will deliver benefits. Health systems announcing mergers point to cost savings achieved through streamlined operations. However, it is not clear that this is the case. MedPac recently found that consolidation is driving private payer rates higher. If that trend continues, government officials might take a more aggressive stance when it comes to hospital mergers.