- Dallas-based Baylor Scott & White Health and Houston-based Memorial Hermann Health System have signed a letter of intent to merge, creating a behemoth health system in the Lone Star State.
- Combined, the two would operate 68 hospitals, two health plans and more than 14,000 affiliated physicians.
- The companies generated more than $13 billion in revenue and more than $360 million in operating income combined for the fiscal year ended June 30, according to figures from both Baylor Scott & White and Memorial Hermann's financial results.
This mega deal in Texas is just the latest in a flurry of M&A activity among health systems looking to add scale to their operations.
In April, Illinois' largest health system, Advocate Health Care, finalized its merger with Wisconsin-based Aurora Health Care to create not only a dominant regional player — with a footprint so vast it straddles both Illinois and Wisconsin — but also one of the largest systems in the country.
For comparison, the combined system in Texas would likely be larger than Advocate-Aurora in terms of revenue, according to a review of the Texas systems' latest year-end financial data, which shows combined revenues of more than $13 billion. Advocate-Aurora previously said it expected annual revenues of about $11 billion.
In Texas, the two systems are promising to be a "model for integrated, consumer-centric, cost-effective care," according to a joint statement released Monday. "We must lead the change in our industry, while insisting we continue to fulfill our unwavering commitments to meeting the needs of all Texans," Jim Hinton, CEO of Baylor Scott & White said in a statement.
Limited terms of the deal were released Monday, including leadership and board makeup. Each entity will have an equal number of board seats. There will be only one, unified board overseeing the combined organization.
The merged system, which has yet to settle on a name, will be led by Hinton. He will be joined in the proposed "office of the CEO" by Chuck Stokes, president and CEO of Memorial Hermann and Pete McCanna, president of Baylor Scott & White.
The two expect to reach a definitive agreement in 2019 after a period of exclusive negotiations, due diligence and regulatory review processes, according to Monday's statement.
James Henderson, the Ben Williams Professor of Economics at Baylor University, told Healthcare Dive that over the years Baylor Scott & White has expanded its footprint all the way from Dallas to Austin, nearly 200 miles south along Interstate 35. It only made sense for Baylor Scott & White to look east to Houston, Henderson said. Looking at the western part of the state didn't make sense because the next major population center isn't until Lubbock, nearly 345 miles from Dallas.
With Baylor Scott & White a major player in multiple large metropolitan areas in Texas it will have considerable scale, and Henderson expects regulators to look closely at the deal.
"As an economist, consolidation, whether it's vertical or horizontal consolidation, often leads to concentration and concentration gives this new system a lot of bargaining power and that's where prices are determined. I think there is a real danger that it could lead to higher prices," Henderson said.