(480) 923-0802

Our Take: Baylor Scott & White, Memorial Hermann call off merger

Feb 11, 2019

Baylor Scott & White Health (BSWH) issued a statement Tuesday via Twitter announcing that merger talks with Memorial Hermann Health System have ended.

“Ultimately, we have concluded that as strong, successful organizations, we are capable of achieving our visions for the future without merging at this time,” said BSWH. “We will continue to seek opportunities for collaboration as two forward-thinking, mission-driven organizations.”

The two Texas-based health systems announced on Oct. 1, 2018, that they had signed a letter of intent to merge. Neither organization offered a reason for ending their merger talks. The combined organization would have had 68 hospitals, 1,100 sites of care and $14 billion in combined revenue.

Our TakeApparently bigger isn’t always better.

When the merger was first announced, it appeared that the deal had been in the works for some time, as evidenced by a polished website that was ready to go at launch—replete with feel-good videos—proclaiming that the two organizations were “transforming health together” for the good of all Texans.

And it made sense for several reasons. For one, Memorial Hermann facilities reside primarily in the greater Houston area, while BSWH spans the area from Austin to Dallas-Ft. Worth. There’s virtually no overlap in the markets they serve, and in each highly competitive city they are the market leader. It that way, although not to the same scale, it felt a lot like the Dignity-CHI merger.

As we pointed out at the time, both systems are on a strikingly similar path from volume to value. Memorial Hermann manages several hundred thousand lives in multiple ACO agreements, and its MSSP ACO has consistently been one of the top-performing ACOs in shared savings. In its first five years, Memorial Hermann’s MSSP ACO had gross shared savings of more than $260 million.

Baylor Scott & White Quality Alliance, BSWH’s contracting arm, took a little longer to enter the MSSP program and hasn’t performed as well financially, but it manages a similar number of lives through multiple ACOs with an outstanding track record for quality.

There are differences in the two Texas giants, such as Memorial Hermann’s substantially larger proportion of Medicaid patients and a more significant retail presence. BSWH has more pieces of the integrated delivery spectrum than does Memorial Hermann, having several large physician groups, more lives under management in its health plan and a larger post-acute footprint.

Martin Arrick, managing director at S&P Global Ratings for its not-for-profit health care group, told the Houston Chronicle that joining separate corporate cultures can be tricky, especially when the scale grows.

“Is Texas really ready for a statewide system?” he wondered. “The answer is perhaps not.”

* Editor’s note: I recently co-authored a chapter on “Health Care Costs and Value” in Jonas & Kovner’s Health Care Delivery in the United States (12th edition, Springer). I was invited to work on the project by my Dartmouth grad school colleague and co-author, David Radley, Ph.D. The book may be used in classrooms, but if you want to get a wide range of perspectives on how health care works (or doesn’t work), I highly recommend it. It’s very readable. –J.M.

What else you need to know
Providence St. Joseph Health (PSJH) announced that it has created a population health management company called Ayin Health Solutions. PSJH said Ayin will offer its suite of population health capabilities to external payers, providers, employers and government entities, including a pharmacy benefit management service. “With Ayin we have a tremendous opportunity to take our knowledge and value-based care proficiencies and extend that expertise to payers and organizations outside of the PSJH system,” said Dr. Rhonda Medows, CEO of Ayin Health Solutions and president of Population Health at PSJH. Morhere.

Pennsylvania Attorney General Josh Shapiro filed a court petitio against UPMC, arguing that the health system is not in compliance with the state’s public charity laws, according to reporting by the Pittsburgh Post-Gazette. At issue is a five-year-old consent decree that allows Highmark beneficiaries to see UPMC physicians and use UPMC facilities until July 1. At a press conference, Shapiro said he is seeking “open and affordable access” to UPMC services and to prevent “excessive and unreasonable billing practices” that result in “unjust enrichment.” If an agreement cannot be reached, Shapiro is also asking UPMC to accept binding arbitration. UPMC and Highmark have been at odds ever since Highmark acquired the former West Penn Allegheny Health System, now Allegheny Health Network, which competes with UPMC. More here.

Kroger Co. employees have access to cardiac surgery through Cleveland Clinic’s Center of Excellence Program for cardiac care under a new bundled payment program through Anthem Blue Cross and Blue Shield in Ohio. Under the Cleveland Clinic Cardiac Concierge Program, Kroger pays 100 percent of travel and accommodation expenses for plan participants and a companion. While Cleveland Clinic has bundled services for employers before, the health system said it’s the first time it has partnered directly with a health insurer for a bundled cardiac care service. Morhere.

Humana and Aledade are teaming up in a value-based care arrangement for Aledade’s Medicare ACOs in Louisiana, Pennsylvania and West Virginia. Through the arrangement, physicians who are part of Humana’s Medicare Advantage network will use tools from both organizations to deliver value-based care to Humana members. Reimbursement to physicians will be based in part on patient health outcomes. Founded in 2014, Aledade has created 35 Medicare and commercial ACOs and other value-based arrangements with more than 4,000 providers in 24 states. More here.

Apple and Aetna are launching a new health app called Attain, which is designed to track and reward healthy behaviors. CNBC reported that the app has been in development since 2016. Aetna plan members who sign up for the app and who don’t own an Apple Watch will receive a Series 3 model, or they can pay to upgrade to a Series 4 model. Users can “earn back” the price of the device over a 24-month period if they achieve certain health goals. CNBC said the program will be available on a first-come, first-served basis to about 250,000 slots, but eventually Aetna expects to roll out the app to all 22.1 million medical members. More here.

What we’re reading
New Medicare for All draft bill sets a global budget model. Modern Healthcare 2.7.19 (subscription required)

Contact Darwin Research Group and we will get right back to you.