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The Evolving Healthcare Landscape: Vertical Integration, Mergers, and the Implications for 2023

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Medriva Correspondents
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The Evolving Healthcare Landscape: Vertical Integration, Mergers, and the Implications for 2023

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The healthcare industry in 2023 experienced a significant shift, characterized by vertical integration, hospital mergers, and a series of smaller yet significant deals. These activities were not only reflective of the industry's trend toward consolidation and collaboration, but also raised important questions about the future direction of the industry and the potential benefits and drawbacks for stakeholders.

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Vertical Integration and Hospital Mergers in 2023

The year 2023 witnessed key vertical integrations and hospital mergers in the healthcare sector, shaped by the updated federal merger guidelines by the Federal Trade Commission (FTC) and Department of Justice (DOJ). These new guidelines broadened the scope of regulators' review, leading to increased scrutiny and risk in deals being cleared. Financially strained health systems sought partnerships with high-performing entities to unlock performance gains. High-profile mergers included Froedtert Health and ThedaCare, as well as Jefferson Health and Lehigh Valley Health Network. These mergers aimed to expand healthcare services and improve the ability to serve communities.

Implications of the Updated Federal Merger Guidelines

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The Federal Trade Commission and Justice Department subtly changed the final merger guidelines, limiting consolidation across all industries, including healthcare. The guidelines could affect cross-market health system mergers, acquisitions of physician practices by hospitals and insurers, and also impact the labor market, companies’ consolidation history, and mergers that limit competitors’ access to products and services. The guidelines also expanded the scope of regulators' review of mergers and acquisitions, affecting potential hospital transactions and lowering the threshold for market concentration. The final guidelines are more aggressive than previous ones, leading to longer potential timelines, more scrutiny, and risk in deals being cleared.

Healthcare Mergers and Market Concentration

As per the Federal Trade Commission (FTC) and Department of Justice (DOJ), the new guidelines aim to limit certain types of consolidation and prevent potential competitors from entering the market or reducing incentives for organizations to pay higher wages. The new guidelines lower the necessary threshold for market concentration and expand the scope of FTC's regulatory review. Health system mergers and acquisitions are slowly returning to pre-pandemic numbers, driven by financial distress, despite an overall trend toward margin recovery.

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Case Study: The Jefferson Health and Lehigh Valley Health Network Merger

Jefferson Health and Lehigh Valley Health Network signed a non-binding letter of intent to merge, creating a 30-hospital network with a reported $14 billion in revenue. The merger, expected to be finalized in 2024, is anticipated to result in a care delivery model capable of managing population health and reducing the cost of care. The merger will also create a wide-ranging care footprint, with more than 700 sites of care across eastern Pennsylvania and southern New Jersey. However, regulatory scrutiny of these transactions is increasing, with proposed merger guidelines issued by the Federal Trade Commission and the Department of Justice in July.

The Impact of Mergers on Healthcare Costs

Finally, the consequences of these healthcare business mergers are not without implications for the cost of care. In Washington State, for example, health insurance premiums have risen by 49 percent in the last decade, possibly due to industry business mergers. Over 80 percent of residents are concerned about affording health care in the future. Thus, while these mergers and acquisitions may lead to more integrated and efficient healthcare systems, their impact on healthcare costs and accessibility, especially for underserved communities, remains to be seen.

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