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Analysis

No Deal: Memorial Hermann, Baylor Scott & White Call Off Merger Talks

By Steven Porter  
   February 05, 2019

The two systems announced their decision without offering much detail.

Merger talks between Memorial Hermann Health System and Baylor Scott & White Health, two of the largest nonprofit health systems in Texas, have fallen apart.

Without offering much detail about what led to the decision, the systems announced Tuesday that they would abandon their efforts to combine operations.

"After months of thoughtful exploration, we have decided to discontinue talks of a merger between our two systems," the organizations said in a joint statement released by each organization.

"Ultimately, we have concluded that as strong, successful organizations, we are capable of achieving our visions for the future without merging at this time," they added. "We have a tremendous amount of respect for each other and remain committed to strengthening our communities, advancing the health of Texans and transforming the delivery of care. We will continue to seek opportunities for collaboration as two forward-thinking, mission-driven organizations."

Related: BS&W's Memorial Hermann Merger Isn't a Ploy for 'Domination'

Related: Why Texas Hospitals' Urge to Merge Takes Precedence

Related: Civica Rx Adds 12 Health Systems as Founding Members

The proposed merger of Dallas-based BS&W with Houston-based Memorial Hermann, which was announced last October, would have formed a 68-hospital system with more than $14 billion in annual revenue, making it one of the largest nonprofit systems nationwide.

Some community stakeholders expressed a sense of relief Tuesday at news that the merger had fallen through.

Chris Skisak, PhD, executive director of the nonprofit Houston Business Coalition on Health, said past mergers have consistently failed to deliver any meaningful cost savings, so there's no reason to believe this union would have been any different. Rather than focusing on scale, these two systems should prioritize value-based care initiatives and working with employers to better meet employee health needs, Skisak told HealthLeaders.

Others were saddened by the news.

"I'm surprised and disappointed that these companies couldn’t come together," Britt Berrett, a former hospital executive and a professor at the University of Texas at Dallas, told Dallas Morning News business columnist Mitchell Schnurman. "It's imperative that we create these large integrated systems because we have to get more efficient, lower costs, improve quality and increase access. There will be many more of these combinations in health care."

A spokesperson for Memorial Hermann who declined Tuesday to arrange for an interview told HealthLeaders that there was no single reason for the mutual decision to remain separate. Spokespeople for Baylor Scott & White did not respond.

Despite the potential tie-up's size and potential impact, the parties had expressed confidence that state and federal regulators would have signed off on the arrangement, since the systems operate in different markets.

One hurdle that the parties acknowledged early-on was the incongruity between their electronic medical record (EMR) systems. While BS&W uses Epic, Memorial Hermann uses Cerner.

"We don't think it's a huge obstacle, and we'll make a decision about moving to a single EMR down the road, if and when that becomes a priority," BS&W CEO Jim Hinton, who would have led the combined entity, told HealthLeaders in October.

Vivian Ho, an economics professor and the director of the Center for Health and Biosciences at Rice University's Baker Institute for Public Policy in Houston, said last fall that the two systems were motivated by increasing market concentration not only among providers but also among insurers and between insurers and providers. The combined entity would have created "a state-based healthcare behemoth to rival HCA," one analyst told HealthLeaders after the plan was unveiled.

The goal had been to finalize the merger by July 1, as The Dallas Morning News reported.

A joint website created for the merger, which had as recently as last month shown executives for both health systems laughing alongside one another, displayed only the joint statement and logos for each entity Tuesday.

Editor's note: This story was updated Tuesday and Wednesday with additional information and commentary.

Steven Porter is editor at HealthLeaders.


KEY TAKEAWAYS

The two nonprofits had announced last October that they aimed to finalize their merger by July.

The deal would have formed one of the largest nonprofit health systems in the nation.

While regulatory review was expected to be a breeze, incongruent EMR systems were one hurdle identified early on.


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