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2 Health System M&A Deals Disrupting Their Markets: Will They Fail?

Analysis  |  By Melanie Blackman  
   September 07, 2023

The Wisconsin and Oregon healthcare markets have two merger deals that could completely disrupt their competitive markets if they go through. But will the FTC give these deals the green light?

According to a recent Kaufman Hall quarterly report, M&A activity increased and brought the number of deals back up to pre-pandemic levels during Q2 of 2023.

Between April and the end of June 2023, there were 20 hospital and health system M&A transactions announced, making it the highest number of transactions announced since Q1 2020.

And the numbers aren't slowing down in terms of health systems announcing plans to merge—but garnering regulatory approval and moving forward with the deal is another story. With the FTC cracking down on antitrust laws and even state and local governments stepping in, deals getting the green light feel often few and far between.

The recent South Dakota-based Sanford Health and Minnesota-based Fairview Health Services failed deal comes to mind, first announced in November 2022, which hit hurdle after hurdle, including a Minnesota state law passed in May 2023 to ban healthcare entity monopolies. Even with a combined footprint that didn't overlap, the deal to create a 58-hospital system was canceled in July 28 due to a lack of support from Minnesota stakeholders.

Two recently announced M&A deals in Oregon and Wisconsin could change their respective markets if regulatory approval is granted, but it looks like a long road ahead for these deals.

Oregon Health and Science University & Legacy Health

Legacy Health and Oregon Health and Science University (OHSU) announced on August 16 that the area's two largest health systems signed a nonbinding letter of intent to merge and create one integrated health system in Portland, Oregon.

Legacy Health, a nonprofit health system, and OHSU, an academic health system with Portland's largest hospital with 576 licensed beds, have had a decades-long relationship, and this deal appears to be OHSU saving Legacy Health from financial distress.

This year, Legacy Health has had to close and sell off locations due to financial issues, including plans to close the Family Birth Center at Legacy Mount Hood Medical Center in Gresham earlier this year, and a tentative deal to sell off lab locations to restructure the struggling hospital's balance sheet.

The deal, still in the first step of the transaction process but expected to close in 2024 following regulatory review, would have Legacy Health joining OHSU, the #1 ranked Best Regional Hospitals in Portland, Oregon by U.S. News & World Report.

As part of the merger, OHSU will make a capital commitment of approximately $1 billion over 10 years to support primary services and community-based services for the combined system.

The combined system would become the largest employer and health system in the Portland metro area, with more than 32,000 employees across 10 hospitals and more than 100 locations.

The new system's footprint would eclipse the other systems competing for patients in and around the Portland metro area, including:

  • Providence: Providence Portland Medical Center and several laboratory patient service centers
  • Kaiser Permanente: Kaiser Permanente Sunnyside Medical Center and Kaiser Permanente Westside Medical Center, and more than 20 medical office locations
  • Adventist Health: Adventist Health Portland, nine primary care locations, 15 specialty care locations, and six urgent care locations.

With an overlapping footprint in the Portland metro area, the FTC and state government may step in stop the process due to antitrust regulation and concerns of a healthcare monopoly. And if the deal does go through, it will create an even larger and stronger competition for other health systems in the area.

Froedtert Health & ThedaCare

Froedtert Health and ThedaCare approved a definitive agreement on September 6 to combine the two health systems by the start of 2024, pending regulatory approval. Milwaukee-based Froedtert Health and Neenah-based ThedaCare first announced the deal on April 11, when the systems signed a letter of intent to combine.

Froedtert Health is an integrated healthcare system with 10 hospitals and 45 health centers and clinics in partnership with Medical College of Wisconsin creating the Froedtert and MCW health network in Southeast Wisconsin with an annual revenue of $955.8 million. ThedaCare, based in Neenah, serves communities in Northeast and Central Wisconsin through eight hospitals with an annual revenue of $439.6 million.

Currently, the systems have an existing quaternary partnership, including the Medical College of Wisconsin, to expand healthcare access in the state as well as a joint venture to create two new health campuses in Fond du Lac and Oshkosh.

Following the merger, the 10-hospital Froedtert system in the southeast and the 8-hospital ThedaCare system in the northeast of the state plan to operate under their established brands and names.

While the organizations have not disclosed financial agreements, Fitch Ratings affirmed Froedtert Health's Stable AA rating in June 2023 and has kept ThedaCare's affirmed rating from December 2022 as AA- Stable.

The goal is for the merger to be completed by the end of 2023, pending the completion of a definitive agreement, due diligence, and board and government regulatory approvals, which may fare well for the systems. There are 37 community health and hospital systems across Wisconsin, and Froedtert Health and ThedaCare don't overlap in footprint, not including their joint ventures. But will this be enough for the FTC and the state government in terms of competition with the state's other health systems? We'll have to wait and see.

Melanie Blackman is a contributing editor for strategy, marketing, and human resources at HealthLeaders, an HCPro brand.

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