Execs from Baylor Scott and White and Memorial Hermann haven’t released any information about why they called off the merger—other than their belief that they can achieve their goals separately—leading many in the industry to speculate as to how they came to that conclusion.
Allan Baumgarten, who prepares the Texas Health Market Review every two years and has extensive knowledge of the healthcare business in Texas and nationwide, indulged my speculative questioning and shared five reasons that may have been the reason the merger was eighty-sixed.
The prospect of a lengthy and expensive anti-trust challenge
Baumgarten says that even though several similar non-overlapping mergers have sailed through the security exahcnge commission recently, this one might have caught the eye of regulators because of its size. It would have formed the largest network in Texas covering three major metropolitan areas, exhibiting significant market influence. “With statewide market power, it would be something for the health plans to be concerned about and employer customers to be concerned about,” Baumgarten says.
The cost of combining both organizations
With each of the systems on different electronic medical record systems, the cost and difficulty of aligning those systems can be massive. Even when two systems are on the same EMR system, they often have different generations that make merging difficult. Baumgarten also noted that when systems are switched, billing can be lost and that there is an expected hit to revenue due to confusion when switching systems. The larger the system, the greater the costs.
The differences between a mostly private system and one with more academic connections
With Baylor Scott and White being closely tied with Texas A&M’s medical school and Memorial Hermann being a mostly private system, the doctors may not have wanted to be associated with a different style. Baumgarten pointed to an attempted merger in Detroit between Beaumont Health and the Henry Ford Health System. Beaumont was a strong private suburban system, and Henry Ford was staffed with more academic doctors who were on salary. Friction between the two styles put the merger off.
With Baylor being the much larger system, perhaps Memorial Hermann executives saw that they may not had a position in the new company. Perhaps in discussions about the distribution of leadership roles, Memorial Hermann was looking for more of an equitable share.
Perhaps, Baumgarten says, as the two systems learned more about the other’s financial position, they were scared off. One side may have had bond debts, or perhaps one of the systems was in trouble with CMS and was due to experience sanctions or loss of funding. Baumgarten also says that the systems could have been rethinking how they wanted to balance the costs on inpatient and outpatient facilities. With markets averaging 60-70 percent occupancy, combining might have left too many empty beds. Outpatient clinics, freestanding ERs, and micro-hospitals like the Baylor Scott and White facility in Uptown may have been more in line with the future for one system or the other.