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How COVID-19 and Value-Based Care Are Accelerating Hospital Mergers and Acquisitions

Two topics that dominate healthcare law right are COVID-19 and value based care. While the healthcare system has been moving towards value-based care for years, COVID-19 has accelerated this transformation. The pandemic has instilled a greater sense of urgency in the healthcare system to adopt virtual care technologies, interoperable data platforms, and remote monitoring technologies for disease management. In this article, we look at another important area driving value-based care: mergers and acquisitions. Particularly, this article illustrates how the pandemic has not only accelerated the paradigm of value-based care but has also accelerated the trend in health care mergers.

Hospital mergers and acquisitions have been on the rise well before COVID-19. Beginning in 2017, there were one-hundred and fifteen merger and acquisition transactions among healthcare organizations. However, COVID-19 has accelerated the perceived need for hospitals to engage in mergers and acquisitions to implement value-based care. This is because value-based care requires providers to control the costs and outcomes for an entire episode of patient care. Hospitals need to generate the scale to accomplish this. The merger provides more resources for hospitals to expand facilities, expand their digital and virtual access, as well as operate at lower costs.

Hospital merger and acquisition activity has not subsided despite the fact that COVID-19 has resulted in revenue losses for healthcare providers because the pandemic has caused healthcare leaders to reassess their current care delivery models. In fact, hospitals and health systems reported fourteen transactions during the second quarter of 2020. The pandemic has highlighted the advantages of scale, coordination and innovation that are likely to strengthen the strategic rationale for mergers, at least with larger hospitals. One notable announcement that occurred in June of 2020 was when Steward Health Care structured a recapitalization transaction with Cerberus Capital Management. The transaction transferred controlling interest of Steward Health Care to a management group of its physicians. This resulted in Steward Health Care becoming the largest physician-owned and operated U.S. healthcare system. The impetus for the transaction was to ensure that Steward Health Care’s transformative, accountable care model would continue to drive innovation as a physician-owned and integrated health care system, especially given the new realities in a COVID-19 world. Also in June of 2020 the largest not-for-profit hospital system in Illinois, Michigan, and Wisconsin announced they signed a non-binding letter of intent with Michigan-based Beaumont Hospital to explore a possible merger. While both entities are far from completing a deal, they also need approval from federal authorities. Early in 2020, the Federal Trade Commission (FTC) disclosed they would closely scrutinize mergers and acquisitions between two providers competing at the same level of the health care delivery chain.

In fact, the FTC and the Pennsylvania Office of Attorney General are seeking a preliminary injunction to block the union of Thomas Jefferson University hospital network and Albert Einstein Healthcare Network. The government postulates the merger would increase hospital prices by an estimated 6.9% at Einstein’s hospitals and cost consumers $23.3 million a year. On the other hand, the American Hospital Association posits that the merger of these two non-profit hospital systems will bring higher quality, greater access and more stability of health care services to some of the most vulnerable patient populations in the Philadelphia region. The FTC proceeding against the merger will take place in January 2021. Like many hospitals affected by the pandemic, Einstein Healthcare Network argues that their only viable option is to merge with Thomas Jefferson University. Whether or not the merger results in an antitrust violation, this case illustrates an important trend of closer ties between hospitals and health systems accelerated by COVID-19. And, a main justification for these mergers and acquisitions will continue to cite the need for delivering value-based care as COVID-19 has forced hospitals and healthcare providers to re-imagine how health systems can be better configured to meet the individualized needs of patients.