Baylor Scott & White Health

Largest not-for-profit hospital chains in Dallas, Houston plan to merge

by Jeff Mosier, energy and environment writer | October 1, 2018

Texas’ largest not-for-profit hospital system will be even bigger after its planned merger with Houston’s largest hospital network, creating a $14-billion health care giant.

Dallas-based Baylor Scott & White Health announced Monday that executives have signed a letter of intent to merge with Houston’s Memorial Hermann Health System. The leadership of the two systems said the consolidation would help them better serve Texas, which is worst-in-the-nation when it comes to the share of residents without health insurance.

The combined 68 hospitals would account for 15 percent of state’s total and cover much of north, central and southeast Texas, according to American Hospital Association figures. Doctors in that new network of hospitals and clinics would see nearly 10 million patients a year and employ more than 70,000 people in 30 counties.

“The cost of healthcare is the number one issue in American, whether it’s in Washington D.C. or Austin or in the benefits office of an employer,” Baylor Scott & White CEO Jim Hinton said. “Taking cost out of the system will be an important part of this journey.”

Hinton, who would become the CEO of the combined entity, said the consolidated health care network should be able to improve patient care while holding down cost increases. The benefits, he said, should come from the sharing of expertise, collaborations on technology and increased buying power and efficiency.

Most changes at the combined system wouldn’t be obvious to patients of Baylor Scott & White or Memorial Hermann in the short term, officials said. “There should be no impact to the delivery of patient care for either one of our systems,” Chuck Stokes, president and CEO of Memorial Hermann said.

The merger comes at a time when there’s great uncertainty about health insurance marketplace.

President Donald Trump and his administration have so far failed to repeal the Affordable Care Act, better known as Obamacare, which incentivized people to sign up for health insurance and penalized those who refused to. The GOP-led efforts to have the law declared unconstitutional are expected to continue.

There is also uncertainty about how this merger might affect coverage by health insurance networks. While the systems currently have individually negotiated deals with the insurance companies, the larger combined entity might be able to negotiate better deals. “Until we’re one company, we can’t talk about each other’s contracts,” Hinton said. “The short answer is ‘we don’t know.'”

If it goes forward, the merger is expected to be completed in 2019 with a goal of finalizing the deal by July 1. Executives, however, warned that they still need to complete their due diligence and get regulatory approval.

Deborah Cannon, chairwoman of Memorial Hermann, said the deal would need the approval of the Texas Attorney General and has been submitted to the Federal Trade Commission for review of anti-trust issues. “Because we’re in contiguous regions and not overlapping, we don’t anticipate that will be a huge problem,” Cannon said.

Both health networks are not-for-profits that started more than a century ago with religious missions. And both have also grown through mergers.

Monday’s announcement is exactly five years after the merger of Baylor Health Care System and Scott & White Healthcare was completed. That deal made it the largest of its kind in Texas.

In 1997, Hermann Hospital merged with Memorial Healthcare System to create the largest healthcare system in Houston and the surrounding areas.

Hospital mergers and acquisitions have accelerated in the past few years. The 115 transactions in 2017 was the highest in recent history, according to consulting firm Kaufman Hall. There was also a higher percentage of not-for-profits acquiring assets from for-profit companies, which is reversal from previous years.

The top leadership of both organizations are expected to remain if the merger were approved. While Hinton would remain CEO, Stokes would work with him coordinating the merger and overseeing Houston area operations.

The health networks would retain their names in their home regions. The new name of the overall parent organization hasn’t been finalized. It’s not clear whether a merger would lead to job cuts. The CEOs noted that the two companies combined have nearly 5,000 current job openings.Despite the planned hirings, the Houston Chronicle reported in June that Memorial Hermann had laid off 460 so far in 2018. Stokes cited the “uncertain healthcare environment.”

In other areas, such as at its flagship Memorial Hermann-Texas Medical Center, the system is expanding. Hinton said he’s not sure how the combined organization would rank nationally, but that’s not been a driving factor. “We’ll be a large organization, 73,000 employees,” he said. “We want to convert that size into value for the people we serve. That’s really been our main focus.”

Baylor Scott & White Health
47,000-plus employees
More than 7,500 physicians
7-plus million patient encounters annually
More than 800 primary, specialty, and satellite clinics
49 hospitals

Memorial Hermann
26,000-plus employees
6,400-plus physicians
More than 2.4 million patient encounters annually
More than 300-plus care delivery sites
19 hospitals*

SOURCES: The companies
*Includes joint ventures

This article was originally published by The Dallas Morning News and FWD>DFW had no influence on the content created.

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