The American healthcare industry continues to consolidate at a rapid pace, especially in light of healthcare reform. Catholic health systems have taken the opportunity to create larger systems, consolidating with other Catholic entities and increasingly, secular entities. HealthLeaders-InterStudy has tracked the increasing merger and acquisition activity, and notes the three largest nonprofit health systems in the country are affiliated with the Catholic Church: Ascension Health, Catholic Health Initiatives, and Trinity Health. From the recent uptick of Catholic health system M&A, distinct trends are emerging.

First, health systems are working to align cultures, as discussed in the blog Clashing cultures the main reason merger deals fall through. Yet many Catholic health systems strictly forbid their secular partners from offering services that fall outside the church's acceptable practices, including elective abortions, stem-cell research, and physician-assisted suicide.

When Renton-based Providence Health & Services partnered with secular Swedish Health Services in Seattle, the two systems agreed to retain their own brands, and Swedish remained a secular health system. However, part of the agreement stipulated Swedish Health could no longer offer elective abortions. These restrictions led to concerns that access to care will be limited in certain markets. Advocacy groups, as well as politicians, have spoken out against restricting access to women's reproductive services.

Catholic health systems have been the drivers of consolidation in Washington state. The American Civil Liberties Union made a formal request to Gov. Jay Inslee for a six-month moratorium on mergers and acquisitions to examine the effect they have on access to care. Though Inslee did not place a moratorium on M&A, he did call for changes to the state's certificate-of-need laws. When the new rules have taken effect, all healthcare M&A proposals will be subject to scrutiny over care access, cost, and quality of the proposed deal. Washington state may set the precedent for other states to restructure CON laws to protect access to care.

In other cases, Catholic systems have allowed their secular counterpart to offer services that they once would not have signed off on, beginning a trend that will become more prevalent as stakeholders fight against service restrictions. The University of Louisville partnered with CHI-owned KentuckyOne to run University Hospital. Initially, fears were University Hospital would lose its ability to offer women's reproductive services, but these services were kept in place and they were able to retain patients. Other Catholic systems may follow KentuckyOne's example and retain women's reproductive services offered through partner hospitals.

Second, systems are not shying away from the post-merger moves of trimming staff. Catholic Health Initiatives and Catholic Health Partners, both heavily involved in M&A activity, recently announced layoffs to streamline operations. These layoffs are not just affecting employees at the corporate level, but small hospital subsidiaries are also feeling the pinch.

In addition, Catholic systems are forming new ventures to better manage daily business functions. Catholic Health Initiatives formed a physician-services organization, Catholic Health Initiatives Physician Services, that funnels daily business operations into one division of CHI. Creating a separate division that acts as a centralized business division helps streamline processes and improve their financial positioning, which can be reinvested in the system's hospitals and future transactions.

There appears to be no signs of Catholic health systems slowing consolidations, knowing in order to survive in a post-ACA environment, they must diversify their offerings. Up next, Catholic health systems could expand their integrated delivery systems with the formation of their own health plans something HLI will be monitoring very closely as January 2014 draws near.

For the latest news on healthcare M&A, follow Sarah Wilson on Twitter: @SarahWilsonHLI.

 

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