$8B Mercy merger part of trend toward massive health systems

A proposed merger between Mercy Health — the biggest employer in Springfield — and Bon Secours would create a health system with $8 billion in revenue, which experts said is part of a growing trend of increasing consolidation in the industry.

Several factors have driven health systems to merge, said Thomas Campanella, director of the Health Care MBA and a professor of health economics at Baldwin Wallace University. Hospital systems increasingly want to get bigger as they compete for patients.

MORE: New $9M Urbana health center to open this spring

“Mergers are occurring more frequently,” Campanella said. “The big driver of some of these mergers is obviously the financial challenges. Medicare and other payers are recognizing that they are in a position where they are asking for either lower reimbursement or more risk-based reimbursement from hospital systems. There are some economies of scale in being part of a bigger system.”

It’s also not the first health-care merger in Springfield — the downtown Springfield Regional Medical Center was built after the former Mercy Medical Center and Community Hospital joined forces nearly a decade ago to create Community Mercy Health Partners, which recently changed its name to Mercy Health.

The new Mercy-Bon Secours combined entity would be one of the 20 largest health systems in the U.S. and the fifth largest Catholic health system. It would employ 57,000 associates and more than 2,100 employed physicians and advanced practice clinicians.

The impact of the massive Mercy-Bon Secours merger on patients in Clark and Champaign counties isn't immediately clear. Officials at Mercy said the agreement isn't expected to affect local facilities, including Springfield Regional Medical Center and Mercy Health-Urbana Hospital.

“This merger presents a tremendous opportunity for us to expand our combined health ministry, which will create new career and development opportunities for our associates,” said Maureen Richmond, a spokeswoman for Mercy Health. “Consistent with any successful merger, we will organize and restructure our operations thoughtfully and efficiently so we are well-positioned for growth. The efficiencies we achieve will allow us to reinvest resources back into local communities.”

At the same time, retired U.S. Rep. Dave Hobson told the Springfield News-Sun he’s concerned the merger might mean local leaders have less access to the health-care provider’s top leadership as the system becomes larger.

READ MORE: Springfield officials want this new program to help seniors be healthy

Miranda Motter, president and CEO of the Ohio Association of Health Plans, didn’t address the proposed merger directly. But she said the trend toward consolidation nationally is a significant factor in rising health costs. She pointed to statistics from the Centers for Medicare and Medicaid Services that showed national health-care spending is expected to increase at an average annual rate of 5.5 percent through 2026.

And as the cost for prescription drugs, doctor’s visits and hospital stays continues to increase, it’s leading to higher health insurance premiums and large medical bills for patients, she said.

“One major cause of rising costs is provider consolidation — when more and more of the region’s doctors and medical experts work for the same hospital or health system,” Motter said. “Research has found that when hospitals in a region get bigger and squeeze out competition, prices go up for consumers. It’s basic economics.”

Officials from Bon Secours didn’t respond to a request for comment but said in their announcement that the two entities share a similar mission and values.

“This merger strengthens our shared commitment to improve population health, eliminate health disparities, build strength to address social detriments of health and invest heavily in innovating our approaches to health care,” said Richard Statuto, president and CEO of Bon Secours Health System.

A growing trend

Health-care mergers and acquisitions spiked last year, according to a report by Kaufman, Hall and Associates. About 115 transactions were announced last year, the report says, up about 13 percent compared to 2016. Of those, 11 transactions involved sellers with net revenues of $1 billion or more.

“This is just one of many $1 billion-plus organizations that are being announced,” said Anu Singh, managing director at Kaufman. “In 2017, we saw more of these transactions than in any previous year. The trend of the smaller partner being more than $1 billion in revenue is a new and unprecedented phenomenon.”

There are various factors that make mergers attractive, he said, often depending on the market. The trend of larger mergers in health care will likely continue in 2018, Singh said, and could accelerate.

DETAILS: What’s next for downtown Springfield? Nonprofit weighs options

“We are at a time when mergers reduce the expense, time and risk of attaining a key element or characteristic of high-performing health systems, relatively to organically developing it,” Singh said.

Health-care systems face several challenges at a time when the industry is undergoing significant change, said Bryan Bucklew, president and CEO of the Greater Dayton Area Hospital Association. Patients are living longer and using more services, he said, but providers often are seeing Medicaid, Medicare and private insurance paying less money for those services.

Mergers have become more common as hospitals try to boost their financial health and add resources to deal with the changes, Bucklew said.

“Everybody is trying to figure out how health care is going to be delivered in the future and how it’s going to be paid for in the future,” Bucklew said. “Some communities are thinking mergers and partnerships are key and those can manifest themselves in a number of ways.”

Local impact

Mercy officials said the two entities are working with a third-party consultant to determine the next steps as a final agreement is negotiated. It’s not clear exactly how the deal will affect patients in Clark and Champaign counties, or Mercy’s headquarters in Cincinnati. The home office for Bon Secours is located in Maryland.

The deal is expected to close later this year, according to Mercy.

Bon Secours and Mercy serve different markets, Bucklew said, so the deal shouldn’t have a significant impact on competition in the Miami Valley. The merger also could provide Mercy with more resources that benefit patients in Springfield and Urbana, he said.

“This is something Mercy has said makes sense for them and if it makes sense for Mercy, it’s going to be a positive for the Springfield, Clark County and Urbana areas as well,” Bucklew said.

Officials at Mercy have stressed local facilities are not expected to be impacted by the merger. In Springfield, local government officials, community organizations and business leaders worked together to push for the Springfield Regional Medical Center to be built downtown. It’s one of the few communities of its size nationwide to build a new medical center in a densely populated urban downtown.

That project has paid off with job growth downtown and millions of dollars in new investment that might not have otherwise occurred, Hobson said. But he’s raised concerns about how much access local leaders and community organizations will have to the health provider’s top leadership if it becomes even larger.

“We strived for many years to have strong local health care,” Hobson said. “Many of us were disappointed that Mercy has continued to move much of the administration of our health care out of Springfield.”

Mercy Health is the largest employer in Springfield. It’s also the largest health system in Ohio and among the top five employers in the state, with more than 33,500 employees serving communities throughout Ohio and in Kentucky.

The affect of a merger on a specific community depends on the market, said Campanella of Baldwin-Wallace, and could create fewer options for consumers.

Chamber of Greater Springfield leaders declined to comment on the merger and city officials didn’t return a call seeking comment.

What’s driving mergers?

Health-care is undergoing significant change, Campanella said, and more health systems are merging to remain competitive against not only from other hospitals, but also outpatient and in-home providers.

“Mergers occur for lots of different reasons and they are occurring more frequently,” Campanella said. “The big driver is the financial challenges hospitals are facing, not just now but down the road.”

A changing health-care landscape means that inpatient care is decreasing, he said, and most care will be provided in the outpatient setting. That shift will increase the opportunity for new competitors to enter the local marketplace, Campanella said, especially in niche services.

With advances in science and technology, the new frontier will be the home setting, he said, which will bring both challenges and opportunities to existing providers.

“Most of the action that’s occurring in health care now and in the future will be on the outpatient side, and there will be more health care provided in the home setting,” he said. “Because of that, the hospitals themselves, their model is being challenged because they’re going to see a lot more competitors on the outpatient side and the home side than they’ve ever faced before. It’s important during this time to prepare yourself and make sure you as an organization are financially solid.”

He also pointed out that insurers have been pushed to provide more information about the cost and quality of services, which will allow consumers to take a more active role in their care and make better decisions on where they go for services.

Singh, of Kaufman, Hall and Associates, said the trend toward creating larger hospital systems is likely to increase for the foreseeable future.

“The new basis of competition is not limited to inpatient beds,” Singh said. “The full continuum of care from retail locations all the way to post-hospital care is the new market. That redefines the nature of how competition may be defined.”

While it may play a smaller role, Bucklew said health systems are also combining partially as a way to better cope with uncertainty created by frequent changes in federal health care regulations.

“All those things play into the uncertainty of the market.” Bucklew said. “It’s very difficult to do business plans when you have huge sections of law that is being either re-legislated or the regulatory scene is changing.”

By the numbers:

$8 billion — Combined revenue if entities merges

57,000 — Estimated combined employees

7 — States where companies have a presence

10 million — Estimated patient encounters combined

In-depth coverage

The Springfield News-Sun has provided extensive coverage of medical issues impacting patients in Clark and Champaign counties. For this story, the paper talked to experts about the potential impacts of a merger that would create a massive, nationwide health-care chain and its likely impact on local patients.

About the Author