The downsides of 'merger mania' in healthcare - Health Professionals & Allied Employees

The downsides of ‘merger mania’ in healthcare

Taken from Becker’s Hospital Review

By Alia Paavola

November 10, 2021

After a decade of “merger mania,” many organizations now are taking a step back and looking to unwind past partnerships or call off deals before they are finalized.

Most recently, St. Louis-based Ascension and Altamonte Springs, Fla.-based AdventHealth announced they would unwind their Amita Health partnership after working together for nearly seven years. Amita Health, a Chicago-based joint venture between the two companies, comprises 15 acute care hospitals, four specialty hospitals and immediate and outpatient care centers.

While their called-off deal is the most recent, there are several other mergers and acquisitions that have fallen apart in recent months. This includes Duluth, Minn.-based Essentia Health and Chicago-based CommonSpirit Health abandoning a deal that would have added 14 hospitals and three clinics to Essentia Health’s network.

To understand why this is occurring on a more frequent basis, it’s important to look at what is happening in the healthcare landscape, according to Michael Abrams, managing partner of global healthcare consultancy Numerof & Associates.

In the last decade, providers have been pursuing deals to gain market power to stand up to payers, and, as a result, the industry is very consolidated, Mr. Abrams said.

“Given the massive consolidation of payers, many providers felt they needed to get bigger,” Mr. Abrams said. “The logic was that only by getting bigger and gaining control of the markets could providers stand up to the power of payers and extract the reimbursements they felt they were entitled to.”

After this decade of major consolidation of providers and payers, many healthcare organizations are now stepping back and realizing that being a larger organization can’t solve every problem, Mr. Abrams said. They also are realizing that these combinations pose long-term costs, legal risks and integration challenges.

When a merger is finalized, it involves a lot of work, Mr. Abrams said. It involves integration, rationalizing new policies and replicating them throughout the larger organization and making decisions about how the majority culture will change to accommodate the combination. However, Mr. Abrams said that, from his experience, many organizations fail to take these steps or execute them poorly, leaving promises of the merger largely unfilled.

“In many cases, the merged organization has paid out millions of dollars for the process of the merger, but the promised economies of scale and strategic goals of the merger don’t materialize,” Mr Abrams said. “Instead, we wind up with a larger organization with much more complexity because it never integrated command structures, policies or cultural expectations.”

In addition to challenges with integration, Mr. Abrams pointed to several other trends in the healthcare landscape contributing to providers rethinking their deals.

Mr. Abrams said a key promise of many mergers announced in the last decade was to improve cost efficiency and value to patients. However, many mergers haven’t resulted in meaningful change to cost or value, Mr. Abrams said. This is especially true because providers still rely heavily on fee-for-service payment methods, meaning that when patients stop coming, so does the revenue.

“The promise of moving to a more accountable model that was offered as a rationale for merger mania was just that — a promise that remains mostly unfilled,” Mr. Abrams said.

There is also an increased threat of a legal challenge to a merger from the Justice Department and Federal Trade Commission under the Biden administration, Mr. Abrams said.

The Biden administration and FTC have said they are very concerned about consolidation in many sectors, including healthcare; earlier this year, President Joe Biden signed a 72-initiative executive order targeting consolidation across economic sectors. The order encourages the Justice Department and FTC to “vigorously” enforce antitrust laws, even on past mergers that previous administrations haven’t challenged. It also calls on the antitrust departments to review and revise their guidelines on hospital mergers to limit harm to patients.

“The threat of a years long legal fight is convincing many people and acquirers that the risks may outweigh the benefits of a combination,” Mr. Abrams said.

Mr. Abrams added that traditional providers are facing bottom-line pressures as reimbursement continues to lag behind medical inflation, and the pandemic hampered finances. As a result, providers are taking a close look at the profitable and less profitable parts of the system. Many providers are also thinking about dropping some of those less profitable assets, which can explain some of the deals and partnerships unwinding, Mr. Abrams said.

“In this environment, many of these institutions that have executed mergers can’t help but reexamine what they’ve gone through and ask if the results were worth the cost,” Mr. Abrams said.

How hospitals can best protect themselves from a called-off deal 

For hospitals pursuing partnerships, Mr. Abrams recommends reexamining the reasons for proposing the deal in the first place.

“There needs to be compelling, strategic and tactical reasons for following through with the merger, given the risks are considerably higher,” Mr. Abrams said. “If you’re going to spend your free cash supply on an acquisition, you better make darn sure there’s a meaningful and attainable positive outcome at the end of the road, or it’s just not worth taking the trip.”

One final word of advice 

Mr. Abrams also said larger healthcare organizations need to understand that they are not immune from the threats of disruption from nontraditional providers. He recommends keeping an eye on what these providers are doing and protecting parts of the business.

“This merger mania has given large organizations a mistaken sense of safety,” Mr. Abrams said. “They think because they are so big, they are impervious. Some of them don’t really see the potential erosion of their business from alternative businesses. They are all coming after your lunch. The fact you’re big and profitable now shouldn’t prevent you from seeing the potential threats out there.”


There are several key reasons healthcare mergers are being called off at a more rapid pace than in the past, including integration woes and the threat of a legal challenge. However, there are several key things hospitals can do to protect against needing to unwind a partnership down the road, including finding strategic, compelling and tactical reasons for pursuing the deal in the first place.