Merger updates: Several regional mergers are completed, one is called off, and a new one is proposed
Several mergers were completed last week, including the one between St. Louis-based BJC HealthCare and Kansas City, Mo.-based Saint Luke’s Health System. The two nonprofit systems officially finalized their transaction on Jan. 1, with Saint Luke’s joining BJC to create an integrated health system with 24 hospitals and hundreds of additional care sites.
The newly combined health system has an enterprise value of approximately $10 billion and serves patients across Missouri, Illinois, Kansas, and the greater Midwest region. According to the press release, the health system will operate as BJC Healthcare in the eastern portion of its service area and as Saint Luke’s Health System in the western portion. Richard Liekweg, who served as CEO of BJC Healthcare prior to the merger, is CEO of the combined health system.
Two other Missouri health system mergers also were finalized last week:
Columbia-based University of Missouri Health Care (a.k.a. MU Health Care) and Jefferson City-based Capital Region Medical Center took the next step in a partnership that has spanned more than 25 years, unifying under the MU Health Care brand.
Also, Cape Girardeau-based SoutheastHealth officially became part of St. Louis-based Mercy and is being rebranded as Mercy Southeast. SoutheastHealth’s CEO, Kenneth Bateman, is deferring his planned retirement and will stay on as CEO of Mercy Southeast until later this year, according to the announcement.
Wisconsin’s Froedtert Health, based in Milwaukee, and ThedaCare, based in Neenah, launched as a combined health system with 18 hospitals on Jan. 1 after finalizing the plans they announced last April.
As indicated in a news release last month, the health systems will retain their existing names. Cathy Jacobson, Froedtert’s CEO and president, will serve as CEO of the combined entity for six months and then retire. Dr. Imran Andrabi, CEO and president of ThedaCare, will serve as president of the combined organization for six months and take over as CEO when Jacobson leaves.
On Friday, two other health systems that operate in Wisconsin and surrounding states dropped their plans to integrate. Duluth, Minn.-based Essentia Health and Marshfield (Wis.) Clinic Health System signed an integration agreement in July to form a 25-hospital regional health system that would have served rural and mid-urban communities in Michigan, Minnesota, North Dakota, and Wisconsin.
But in a joint statement, the health systems said they have decided that combining at this time “is not the right path forward for our respective organizations, colleagues, and patients.” They added that they would continue to seek opportunities to collaborate.
MPR News and other news outlets reported that Essentia Health said Marshfield Clinic’s financial situation was “the primary factor in our decision to end discussions.”
Just before the holiday break, Philadelphia-based Jefferson Health announced that it had signed a nonbinding letter of intent to create an integrated care delivery system with Allentown, Pa.-based Lehigh Valley Health Network (LVHN). The resulting organization would have 30 hospitals and more than 700 sites of care across eastern Pennsylvania and southern New Jersey, as well as a national research university (Thomas Jefferson University) and a not-for-profit health plan.
“Combining Jefferson’s and LVHN’s resources will allow us to meet the changing needs of our diverse communities faster, more efficiently, and more effectively,” said Dr. Joseph Cacchione, Jefferson Health’s CEO.
Per the announcement, Jefferson Health and LVHN expect to sign a definitive agreement and close the transaction this year, provided they receive the necessary regulatory approvals and other customary closing conditions are met.
If the deal is finalized, Dr Cacchione will be the combined organization’s CEO. LVHN’s president and CEO, Dr. Brian Nester, will serve as president of the legacy LVHN, and Dr. Baligh Yehia, Jefferson Health’s president, will continue to serve in that capacity for the legacy Jefferson Health.
Our Take: A considerable number of hospitals and health systems are still struggling to regain their financial footing nearly four years after COVID began wreaking as much havoc on their income statements as it did on their operations and staff.
During those four years we’ve seen a few largish mergers, but most have been smaller unions between regional health systems that found it would be easier to move forward if they pooled their resources. We’ve also seen several deals called off after one or both parties decided against taking the risk.
Deloitte expects the post-pandemic rebound in health system merger-and-acquisition activity that occurred in 2023 to continue this year.
KPMG, in its 2024 Healthcare and Life Sciences Investment Outlook report, said it expects strategic deals to continue to outpace financial deals this year, with some hospitals and health systems seeking alternative approaches, such as joint ventures and partnerships, to boost efficiencies and margins while expanding offerings to the communities they serve.
In the report, KPMG also said it expects “a few megadeals” in 2024 but that many larger hospital and health systems will continue to seek out smaller acquisitions, such as physician practices, community hospitals in need of resources, and ancillary providers (e.g., urgent care centers).
There’s no way of telling how much of an effect the new merger guidelines the Federal Trade Commission and the Department of Justice released in mid-December will have on M&A activity in the health care sector, but it’s almost a certainty that the federal government (and possibly state-level agencies as well) will be scrutinizing proposed deals even more closely than they have in the past couple of years.
The year ahead promises to be an interesting one in many aspects. As always, you can count on us to keep you up to date on what’s happening with respect to Big Pharma and integrated delivery networks.
Bristol Myers Squibb went on a year-end spending spree, agreeing to pay a total of nearly $20 billion in three separate transactions. The largest of the deals, announced on Dec. 22, was the signing of a definitive agreement to acquire Boston-based Karuna Therapeutics for $14 billion. Karuna’s lead candidate, KarXT (xanomeline-trospium), is a potential first-in-class treatment for schizophrenia and is also being evaluated as a treatment for Alzheimer’s disease psychosis. The FDA is expected to make a decision on the drug’s approval for the schizophrenia indication by late September.
BMS also announced a definitive agreement on Dec. 26 to acquire RayzeBio, a San Diego-based radiopharmaceutical therapeutics (RPTs) company that went public in September, for approximately $4.1 billion. The actinium-based RPTs in RayzeBio’s pipeline are being developed to treat solid tumors such as gastroenteropancreatic neuroendocrine tumors, small cell lung cancer, and hepatocellular carcinoma, according to the announcement. Both acquisitions are expected to close in the first half of this year if regulators approve the deals and other customary closing conditions are met.
The third transaction was the signing of a license and collaboration agreement with Redmond, Wash.-based SystImmune for BL-B01D1, a potential first-in-class bispecific antibody-drug conjugate (ADC) in Phase I development as a treatment for metastatic or unresectable non-small cell lung cancer. BMS agreed to pay SystImmune $800 million up front and up to $500 million in contingent near-term payments. SystImmune could receive up to $7.1 billion in additional payments if certain milestones are met.
AstraZeneca also made a couple of late-year, billion-dollar deals, entering into definitive agreements to acquire Seattle-based Icosavax for up to $1.1 billion and Gracell Biotechnologies, a cell-therapy company based in China, for up to $1.2 billion. Icosavax uses a protein virus-like particle platform to develop vaccines, including its lead candidate, IVX-A12, a potential first-in-class combination vaccine that targets respiratory syncytial virus and human metapneumovirus, AstraZeneca stated in a press release. AstraZeneca noted in the Gracell announcement that the deal includes GC012F, a dual-targeting autologous CAR T-cell therapy in clinical development for blood cancers, including multiple myeloma, and autoimmune diseases such as lupus. Both transactions are expected to close this quarter, pending regulatory approval and the satisfaction of other customary closing conditions.
Cigna called off its negotiations to acquire Humana, choosing instead to launch a $10 billion stock buyback, Reuters reported on Dec. 10. Sources familiar with the situation said the two insurers were unable to agree on a price, according to Reuters. Although the Humana deal has been shelved for now, apparently Cigna is proceeding with plans to sell its Medicare Advantage business — possibly to Health Care Service Corp. for somewhere between $3 billion and $4 billion, Reuters reported on Wednesday.
Patients admitted to hospitals bought by a private equity firm appear to be at higher risk for adverse events such as falls, central line-associated bloodstream infections, and surgical site infections than patients admitted to non-private equity hospitals, a study published online Dec. 26 in JAMA suggests. Researchers used Medicare claims data to compare outcomes at 51 PE-acquired hospitals and 259 matched control hospitals. They found that private equity acquisition was associated with a 25.4% increase in hospital-acquired conditions despite a likely lower-risk pool of admitted Medicare beneficiaries, which they said suggested “poorer quality of inpatient care” following PE acquisition. The study authors noted, however, that the findings “remain susceptible to unmeasured confounding and do not imply causation.”
Google introduced new health care-specific generative AI models last month, referred to as the MedLM family of foundation models. Currently, two MedLM models are available to Google Cloud customers in the U.S. through the Vertex AI platform: a larger model designed for complex tasks and a “medium” model that can be fine-tuned and is best for scaling across tasks, Google executives wrote in a blog post. The MedLM models — which are built on Med-PaLM 2, Google’s large language model designed for the health care industry — have been tested by select health care organizations, including HCA Healthcare and Mayo Clinic, as well as professional services firm Accenture, consulting firm Deloitte, and BenchSci, an AI drug discovery company (additional details about how the models have been used are available in the blog post). Google plans to add Gemini-based generative AI models into the MedLM suite to offer additional capabilities, the blog post’s authors noted.
Walgreens has closed 27 of approximately 60 underperforming VillageMD clinics as part of the company’s plan to reduce costs by at least $1 billion. The drugstore chain announced the intended closures in October when it released its fiscal 2023 earnings report. In December, Becker’s Hospital Review reported that Walgreens would close a dozen VillageMD clinics in Indiana and exit that market this month. During Walgreens’ quarterly earnings call on Jan. 4, CEO Tim Wentworth said VillageMD “is rapidly realigning operating costs with sales.” He also said Walgreens is likely to form partnerships in marketplaces where VillageMD does not have a presence, similar to the partnership established in September with Pearl Health to expand value-based care through community-based primary care physician groups.
How to Navigate the Pitfall of AI Hype in Health Care. JAMA, 1.3.24
Private Equity: The Metastasizing Disease Threatening Health Care. Health Affairs, 12.18.23
10% of U.S. physicians work for or under UnitedHealth. Is that a problem? Medscape, 12.14.23