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Our Take: UnityPoint Health, Presbyterian Healthcare Services sign LOI to explore $11 billion cross-market merger

Mar 06, 2023

UnityPoint Health and Presbyterian Healthcare Services have signed a letter of intent (LOI) to explore the possibility of merging to form a new health care entity valued at approximately $11 billion.

Based in West Des Moines, Iowa, and Albuquerque, N.M., respectively, the two not-for-profit health systems represent a workforce of about 40,000, including nearly 3,000 physicians and advanced practice clinicians.

UnityPoint Health is the larger of the two, with 20 regional hospitals, 19 affiliated community network hospitals, and more than 275 clinics in Iowa, Illinois, and Wisconsin. Presbyterian Healthcare Services has nine hospitals, a multispecialty medical group with more than 900 providers, dozens of primary care and specialty clinics throughout New Mexico, and a statewide health plan.

Their intention, should a formal partnership result, is for each health system to maintain its local brand and operations “while collectively achieving administrative efficiencies under a parent organization,” the organizations said in the announcement of their LOI signing.

The stated goals for exploring a potential merger include “making greater investments in clinical excellence, digital innovation, workforce development, and value-based care while lowering overall administrative costs.”

“As a not-for-profit health system, we must pave a sustainable path forward to continue serving our communities with care and coverage. While we’ve done that successfully independently, we know that partnering with like-minded health systems will allow us to accelerate our efforts,” said Dale Maxwell, Presbyterian Healthcare Services’ CEO. “UnityPoint Health shares in our commitment to keeping health care delivery local and creating a culture where the workforce thrives, which will serve as foundational elements as we embark on this journey.”

The organizations will undertake more comprehensive due diligence efforts as they work toward a definitive agreement and seek regulatory approvals. They did not specify whether the LOI is binding or provide a timeline for reaching any decisions.

UnityPoint considered merging with Sioux Falls, S.D.-based Sanford Health in 2019 but abruptly ended those discussions later that year. Sanford has been in talks with several health systems over the last decade and is currently attempting to merge with Minnesota’s Fairview Health Services.

MercyOne, which is a member of Trinity Health and is Iowa’s other major health system, just completed its acquisition of Davenport, Iowa-based Genesis Health System on March 1.

Our Take: In an article he wrote in December for the Healthcare Financial Management Association, David Johnson, who’s the CEO of an advisory firm called 4sight Health, questioned whether traditional nonprofit health care business models have reached the end of the road.

He said more than half of the nonprofit health system CEOs who attended an investor forum where he gave a keynote address acknowledged that their “asset-heavy business models were not sustainable,” and “most agreed that their operations required a major overhaul to remain competitive.”

Granted, there were only “roughly a dozen” of these CEOs, but their responses support the basic premise Johnson discussed in the article — that nonprofit health systems “are bleeding red ink,” and their current operating losses could indicate “a broader collapse of their models.”

“Structural weaknesses, combined with pernicious macro forces, make this a period of unprecedented challenge for nonprofit providers,” he wrote.

“Whether they realize it or not, nonprofit hospitals and health systems are playing a new game,” he noted, defining the new game as one that “centers on consumerism and value.”

“Surviving health systems will solve consumers’ health care problems at fair prices,” he wrote.

To deliver those fair prices while grappling with the long-lasting challenges the pandemic inflicted on them (e.g., reduced inpatient volumes, endless supply chain issues, and crippling labor shortages) more nonprofit health systems are seeking partnerships like the one UnityPoint Health hopes to establish with Presbyterian Healthcare Services.

In the last couple of years, the federal government’s increased scrutiny of mergers and acquisitions for potential antitrust harms has scuttled several large deals among health systems. As a result, more health systems seem to be exploring cross-market partnerships like this one, where there’s no geographic overlap.

The belief, or at least the hope, is that the deals will stand a better chance of receiving the required regulatory approvals. But there’s evidence that even mergers between hospitals in separate markets can drive up prices (if they’re in the same state) because the merged organization has greater negotiating power with payers.

UnityPoint and Presbyterian are in separate markets in different states, so in theory there shouldn’t be any antitrust concerns if they choose to proceed with their plans to combine.

What else you need to know
Eli Lilly announced Wednesday that it will reduce the cost of its Humalog (insulin lispro) and Humulin (insulin human) by 70% in the fourth quarter of this year. Humalog has a list price of $530 for a pack of five injection pens or $274 per vial, and Humulin’s list price is around $107 per vial. Lilly will also lower the list price of its nonbranded insulin lispro to $25 per vial, starting May 1. In addition, effective April 1, the company will launch an authorized biosimilar, to be marketed as Rezvoglar (insulin glargine-aglr), that is interchangeable with Lantus (insulin glargine). Rezvoglar will be priced at $92 for a five-pack of KwikPens, a 78% discount to Lantus. And effective immediately, the company is capping out-of-pocket costs for its insulins at $35 at participating retail pharmacies for people with commercial insurance — the same as the cap for Medicare beneficiaries under the Inflation Reduction Act. Uninsured patients can use Lilly’s Insulin Value Program savings card to receive the company’s insulins for $35 a month. Sen. Bernie Sanders, I-Vt., who chairs the Senate Health, Education, Labor, and Pensions Committee, wrote letters to Novo Nordisk and Sanofi, the other two major insulin manufacturers, asking them to follow Lilly’s lead and substantially lower their prices.

Toledo, Ohio-based ProMedica will sell its Heartland hospice and home care assets to Gentiva, an Atlanta-based company that provides hospice, palliative, and personal care to patients in 36 states. Gentiva is led by David Causby, the former CEO of Kindred, and backed by Humana and Clayton Dubilier & Rice, a private equity firm. Although the press release announcing the definitive agreement said terms of the transaction were not disclosed, multiple sources reported that the deal is valued at $710 million, including debt. Gentiva will gain more than 120 locations, bringing its total locations to approximately 500, according to Becker’s. If regulatory approvals are granted and other customer closing conditions are met, the transaction is expected to close in the second quarter.

Bright Health is in dire financial straits. Along with reporting a fourth-quarter net loss of $668.6 million and a net loss of $1.4 billion for 2022, the insurer recently acknowledged in a press release that it breached the minimum liquidity requirement of its credit facility. Through a waiver and amendment, the company was able to reduce the minimum liquidity requirement until April 30. In the meantime, the company expects to disclose in its Form 10K annual report later this month “substantial doubt of the company’s ability to continue as a ‘going concern.’” On the company’s recent earnings call, Chief Financial Officer Cathy Smith noted that the “going-concern qualification” is predicated on the company’s ability to obtain additional capital (approximately $300 million) to fund operations for the next year. CEO Mike Mikan said on the call that Bright Health now has a “very different risk profile,” after exiting the “volatile” ACA exchange market at the end of last year.

Yet another federal investigation of pharmacy benefit manager (PBM) practices is underway, this one by the House Committee on Oversight and Accountability. At least initially, the probe will focus on alleged anticompetitive tactics (e.g., spread pricing and rebates) by the nation’s top three PBMs — CVS Caremark, Express Scripts, and OptumRx. Collectively, they control an estimated 80% of the market. B. Douglas Hoey, CEO of the National Community Pharmacists Association (NCPA), said in a news release, “After years of work by NCPA and others, the tide in Washington seems to be turning, with this latest investigation and other ongoing efforts offering hope that changes will be coming.”

Pfizer may be poised to make Pharma’s largest acquisition since 2019, when AbbVie bought Allergan for $63 billion and Bristol-Myers Squibb laid out $74 billion for Celgene. Pfizer is in early discussions to acquire Bothell, Wash.-based Seagen, according to The Wall Street Journal. As of Friday afternoon, Seagen had a market capitalization of about $34 billion, but analysts believe the oncology-focused drugmaker could fetch a price upwards of $40 billion. Bloomberg reported last summer that Merck and Seagen were attempting to negotiate a deal valued in excess of $40 billion but ultimately could not agree on a price. Neither Pfizer nor Seagen has commented on the potential buyout.

What else we’re reading
The Age of the Unthinkable: Why the New World Order Constantly Surprises Us, by Joshua Cooper Ramo. Lately, I find myself reaching for books in my library that I purchased with good intentions, but never got to reading them. This is one of those gems. Ramo travels the world order interviewing people from all disciplines to make sense of why old models fail and posits a new approach. I’m only partway through it, but I’m already convinced that Ramo is a unique thinker for our time.

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