The merger of Catholic Health Initiatives and Dignity Health last Friday capped a year of regional IDN megamergers. Large IDNs across the nation merged with like-minded organizations in non-overlapping (or slightly overlapping) service areas in order to gain scale and population health management capabilities, while skirting the watchful eye of the Federal Trade Commission. Expect to see more mergers along this scale for the next few years—allowing IDNs to grow ever-larger and while tightening integration—before they ultimately coalesce around a few national organizations working closely with specific payers.

CHI and Dignity, now called CommonSpirit Health and based in Chicago, created the second-largest IDN by inpatient discharges in the nation, but the combined IDN only has about 40 percent of the inpatient volume of for-profit HCA, by far the largest hospital chain in the nation.

Like the mergers of Chicago’s Advocate Health Care with Milwaukee-based Aurora Health Care but on a larger scale, there was negligible overlap in service area between CHI and Dignity, giving the FTC little reason to put the brakes on the deal. Advocate learned the hard way that the FTC does not want large IDNs becoming dominant within a market or even within a neighborhood; the agency halted Advocate’s planned takeover of NorthShore University Health System in 2017 because of the effect the merger would have had on the North Shore area of Chicago.

As I wrote in a 2016 blog:

“The agency is trying to determine the tipping point between a health system being large enough to create efficiencies, but not so large to demand exorbitant rate increases from payers. That tipping point appears to be if an insurer can create a viable insurance product that excludes the merged health system from its provider network…

“If the mergers are stopped, expect 40- to 50-percent market share to be a de facto cap for IDNs within a region. Large IDNs will instead affiliate with IDNs in nearby markets, forming regional clinically integrated alliances, none of which have a dominant market share within a specific market. Whole states and regions will divide into two or three competing alliances, with lower-premium insurance products directing to one or the other.”

We’ve seen this type of merger come to pass, with Carolinas Healthcare changing into Atrium Health and acquiring Navicent Health in Georgia. Ohio-focused Mercy Health merged with Bon Secours Health System, whose service area was mostly in Virginia. Mountain States Health Alliance and WellMont had some overlap, but merged to form Ballad Health, a large IDN focused on the Appalachian region where Tennessee and Virginia meet.

The biggest merger of the year was the one that didn’t happen: the attempted Ascension/Providence St. Joseph merger would have created the largest nonprofit IDN in the nation, and closer to the scale of HCA, with about two-thirds of inpatient volume. Talks between the two halted in March 2018. Both Ascension and Providence St. Joseph are working on aligning each of their own components after several years of each acquiring smaller health systems, and the task of alignment of two large patchwork systems may have been too much to take on.

Healthcare remains a very market-level industry, and even the largest national IDNs (such as HCA, Ascension, and Tenet) still operate through regional subsidiaries rather than fully instituting top-down control. While some national IDNs are working toward developing greater clinical integration abilities in order to enforce tighter controls throughout the organization, Ascension, Providence St. Joe, and most others are still working on getting their own component regional subsidiaries in line before attempting large-scale mergers.

Following the template of Advocate Aurora, there should be even more state-focused IDNs merging with each other. In less consolidated healthcare states, large IDNs may find partnering across state lines to be a better means of growth than trying to buy out the few remaining independent hospitals in a market, especially as the landscape shifts from inpatient to outpatient care.

It may be hard to imagine, for example, very dominant IDNs like Banner Health of Arizona relinquishing any controls to Utah’s Intermountain Healthcare or Presbyterian Healthcare Services of New Mexico, but as the Catholic health systems gradually coalesce into Ascension/Providence St. Joseph’s/Trinity/CommonSpirit, the large regional nonprofits may feel greater pressure to form, for example, a Four Corners Health, just as Partners Healthcare is forming a pan-regional IDN across New England. While religious and nonprofit IDNs may merge with like systems across state lines, single-site academic medical centers could form looser alliances while keeping their independence.

After the regional players have merged their non-overlapping territories, that’s when we may start seeing new national players.

Mark Cherry is a principal analyst at DRG and a Hospitals and IDN expert. Follow him on Twitter at @MarkCherryDRG.

Healthbase has been built to provide multi-disciplinary market access teams with the data and insight they need to understand alignments between systems – down to the individual provider level – and ascertain the market control of IDNs across US regions and patient populations.
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