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The Most Influential Hospital Transactions of 2013

Over the past year, mergers and acquisitions within the hospital sector expectedly did not slow down. A more surprising element was the sheer magnitude of some of the deals.

The so-called "mega-merger" was a recurring theme throughout 2013 as several health systems combined forces to create large multihospital networks. For-profits and nonprofits were both part of the act, and many of the transactions in the past year had dramatic back stories.

Here are the most influential hospital transactions of 2013, all of which drastically changed the hospital market and made healthcare executives question how their organizations will fit into the increasingly consolidated industry.


No transaction was bigger in 2013, from a financial perspective, than Franklin, Tenn.-based Community Health Systems and Naples, Fla.-based Health Management Associates.

In July, CHS announced it will acquire Health Management in a deal valued at $7.6 billion — $3.9 billion in cash and stock and the assumption of $3.7 billion of Health Management's debt. The transaction is still undergoing final regulatory review and is expected to close in the first quarter of 2014. CHS will be the largest for-profit hospital operator in the country, by number of facilities, with 206 acute-care hospitals across 29 states. The new CHS will also have combined revenues of approximately $18.9 billion, putting it behind only Nashville, Tenn.-based Hospital Corporation of America.

CHS and Health Management were already big players in their respective markets, and the transaction will expand CHS' dominance. Roughly 60 percent of CHS hospitals are sole providers in their communities, and 70 percent of Health Management's hospitals are sole providers. Combined, about 63 percent of the facilities will be sole providers, with the average hospital having about 150 beds. Most importantly, CHS will be gaining a huge foothold in several markets where it didn't have a big presence, such as Florida, Mississippi and Oklahoma.

The deal is also significant from an investor standpoint. Glenview Capital Management, a New York City-based hedge fund run by Larry Robbins, is a major investor in both CHS and Health Management. Glenview owned 14.6 percent of Health Management — and played a major role in the executive and board leadership reshuffling drama from this year — and it also owns about 10 percent of CHS. Glenview also has significant investments in HCA and other for-profit hospital chains, as the hedge fund is betting a lot of money that hospitals will be big winners under healthcare reform.

Board RoomTenet and Vanguard

In any other year, Dallas-based Tenet Healthcare Corp.'s acquisition of Nashville, Tenn.-based Vanguard Health Systems would have been a primary headliner.

In October, Tenet closed on its purchase of Vanguard. Tenet paid $1.8 billion in cash, or $21 per share of Vanguard stock, and agreed to assume $2.5 billion of Vanguard's debt, giving the transaction a total value of $4.3 billion. Tenet, which will maintain headquarters in Dallas, now owns and operates 77 acute-care hospitals, 173 ambulatory surgery centers and outpatient facilities, five health plans and six accountable care organizations. It also could add several more hospitals into its system, as Vanguard has been working on a few hospital acquisitions in Connecticut.

Tenet gained market share in areas it previously had no footprint, such as Chicago, Detroit, San Antonio, Phoenix and New England — giving it the number one or two position in 19 major markets. Conifer Health Solutions, a revenue cycle subsidiary of Tenet, also received an influx of new hospital customers in the deal.

New York City-based private equity firm Blackstone Group was Vanguard's largest shareholder, and it reaped a big payday from the transaction. Some reports have said Blackstone will collect about $617 million from the deal. Including a dividend in 2011 and a share repurchase in 2010, Blackstone's haul is estimated around $1.1 billion, or more than double its original $495 million investment in 2004.

Highmark and West Penn Allegheny Health System

One of the most highly discussed and longstanding nonprofit hospital deals was between a powerful health insurer and a financially beleaguered health system.

In April, the Pennsylvania Insurance Department approved the affiliation between Blue Cross Blue Shield subsidiary Highmark and West Penn Allegheny Health System, both based in Pittsburgh. The green light ended an almost two-year saga between Highmark and West Penn. Highmark initially filed to acquire West Penn in November 2011. The deal looked dead in September 2012 after West Penn officials decided to cancel the merger, claiming Highmark had breached their affiliation agreement by wanting to restructure the health system through bankruptcy. Highmark salvaged its merger proposal in January when it agreed to purchase West Penn's debt at a discounted rate, thus avoiding any bankruptcy filing.

The West Penn transaction is the cornerstone of Highmark's integrated delivery system, Allegheny Health Network. Throughout the year, Highmark added two other major Pennsylvania-based systems — Saint Vincent Health System in Erie and Jefferson Regional Medical Center in Jefferson Hills — giving Allegheny Health Network a total of eight acute-care hospitals.

Trinity Health and Catholic Health East

In May, Livonia, Mich.-based Trinity Health and Newtown Square, Pa.-based Catholic Health East closed on one of the largest nonprofit mergers in the hospital and health system industry.

The newly merged health system will have its main headquarters in Livonia. It will also have two divisions: Trinity Health Division in Livonia and CHE Division in Newtown Square. The organization consists of 80 hospitals across 20 states, more than $13 billion in annual operating revenue and about $19 billion in assets. The deal makes CHE Trinity Health the third-largest Catholic-based health system in the U.S., only behind St. Louis-based Ascension Health and Englewood, Colo.-based Catholic Health Initiatives.

Trinity and CHE announced their intent to merge in October 2012, and former Trinity President and CEO Joseph Swedish was going to become president and CEO of the new organization. However, in February, Mr. Swedish announced he was resigning to lead Indianapolis-based WellPoint, one of the largest commercial payers in the country. Richard Gilfillan, MD, now serves as president and CEO of CHE Trinity Health, coming over as director of the Center for Medicare and Medicaid Innovation.

Baylor and Scott & White

Texas is one of the largest states in the country, and this year, Dallas-based Baylor Health Care System and Temple-based Scott & White Healthcare changed the state's healthcare landscape.

Baylor and Scott & White completed their merger, forming the largest nonprofit health system in Texas. The new organization, Baylor Scott & White Health, received all necessary approvals after the two systems signed a definitive merger agreement in June. Baylor and Scott & White initiated merger discussions in December 2012.

Baylor Scott & White Health, which has roughly $8.3 billion in combined assets according to unaudited 2013 financial reports, includes 43 hospitals, more than 6,000 physicians, 34,000 employees and the Scott & White Health Plan. Joel Allison, CEO of Baylor, is the new CEO of Baylor Scott & White Health. Robert Pryor, MD, CEO of Scott & White, is now president, COO and CMO of Baylor Scott & White Health. The system's headquarters will be in Dallas.

Mount Sinai and Continuum Health Partners

The Mount Sinai Health System was created in 2013, resulting in the largest private health system in New York City.

The Mount Sinai Medical Center and Continuum Health Partners finalized their merger in September after signing a definitive agreement in July. Initial talks and negotiations began in February. Continuum had planned to merge with NYU Langone Medical Center, also in New York City, but talks broke down after Mount Sinai made a competing offer.

The Mount Sinai Health System has more than 3,500 certified, licensed beds, 138 operating rooms, 12 freestanding ASCs, 6,600 physicians and 35,000 employees. The Icahn School of Medicine will be the lone affiliated medical school for the system.

LSU Health System

Many of the aforementioned transactions involved a merger, acquisition or affiliation between two large organizations, but a major privatization plan of a large public health system also shook the U.S. health system.

Throughout the course of 2013, Louisiana Gov. Bobby Jindal set the stage to sell and close hospitals within Baton Rouge-based Louisiana State University Health Care Services Division. Gov. Jindal and other Louisiana policymakers said the LSU health system was losing money, and privatizing the hospitals would save the state $100 million annually.

W.O. Moss Regional Medical Center in Lake Charles and Earl K. Long Medical Center in Baton Rouge both closed their doors this year as part of the process, while many of the other LSU hospitals began their partnerships with new private operators. For example, in June, Louisiana Children's Medical Center in New Orleans took over Interim LSU Public Hospital, also in New Orleans. Lafayette (La.) General Medical Center absorbed University Medical Center, also in Lafayette.

More Articles on Hospital and Health System Transactions:
When the FTC Looks Back: Implications of Retrospective Reviews of Hospital Mergers
4 Healthcare Transaction Trends to Watch in 2014
Keeping Healthcare Local: Why Some Providers Choose Non-Ownership Collaborations Over Mergers

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