Intermountain Health Merges with SCL Health

This expanded health system now operates 33 hospitals and 385 clinics in seven western states

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CEO SUMMARY: Mergers and acquisitions involving large integrated delivery networks (IDNs) are not only reshaping the nation’s hospital industry. These transactions also transform the way hospitals organize their clinical laboratories. Last month’s merger of Intermountain Health and SCL Health in the Rocky Mountain states comes on the heels of February’s merger in Michigan of Beaumont Health and Spectrum Health. Following such deals, it is common to standardize lab testing services.

ON APRIL 5, IT WAS ANNOUNCED that the merger of Intermountain Health and SCL Health had been completed. This deal creates a regional mega-integrated delivery network (IDN) that spans seven states and demonstrates that consolidation in the hospital/health system industry is alive and well. 

The combined enterprise will continue as a not-for-profit organization and will be called Intermountain Healthcare. A press release about the transaction said, “This combination employs more than 59,000 caregivers, operates 33 hospitals (including one virtual hospital), and runs 385 clinics across seven states while providing health insurance to one million people in Utah and Idaho. With the close of this merger, Intermountain Healthcare is the eleventh largest nonprofit health system in the U.S.”

The announcement further stated, “SCL Health’s Catholic hospitals retain their distinctive Catholic names and continue to operate according to existing practices.” News reports indicate the new IDN is estimated to produce annual revenue of $14.2 billion. 

The consolidation of these two health systems—including the 25 hospitals owned by Intermountain and the eight hospitals owned by SCL—has interesting consequences for the clinical laboratory profession and in vitro diagnostics (IVD) manufacturers. 

Laboratory Standardization

It is typical for a hospital or health system merger to quickly tackle standardization of clinical laboratory testing services because it is easier to move specimens within the system than patients. 

Standardizing test methodologies and lab analyzers throughout all the laboratories within the health system makes it easier to move staff between different lab sites. Given the large rural areas served by the combined system’s 33 hospitals, this would help with lab staffing, particularly given the shortage of lab staff that is universal throughout the United States. 

For IVD manufacturers, the Intermountain/SCL merger eliminates one buyer as a distinct customer and makes the now-larger IDN a bigger buyer of supplies, tests, automation, and instruments. From this perspective, it means that the IVD industry loses one client and the leading IVD companies must fight more intensely to capture the much larger business of the expanded Intermountain Health. 

Many mergers and acquisitions between hospitals and health systems are motivated by poor finances. That does not seem to be the case with Intermountain Health and SCL. Both health systems reported black ink in recent years. 

Instead, principals behind this merger see value in combining the best of both health systems. Last September, in a video about the merger announcement, Intermountain CEO Marc Harrison said, “We feel strongly that American healthcare needs to evolve towards population health and value,” adding that the merger would create “a model system for rural healthcare for the rest of the country.”

Size Brings Benefits

Clinical lab administrators and pathologists should understand that this merger of two big healthcare systems in the Rocky Mountain region—along with the merger earlier this year of Beaumont Health and Spectrum Health in Michigan (see sidebar below)—is evidence of the continuing market pressures on hospitals and health systems to grow larger to protect market share and gain clout when negotiating contracts with payers. 

Another dynamic in play is the shift in Medicare enrollment from Part A and Part B (fee-for-service) programs to Medicare Advantage, under which the providers (both hospitals and physicians) are paid a fixed amount that is risk-adjusted to provide care to Medicare beneficiaries. Enrollment in Medicare Advantage is growing annually by double digits. Hospital administrators recognize that a sizeable proportion of their patients are senior citizens enrolled in a Medicare Advantage plan. Therefore, a larger health system that is vertically integrated is better positioned to compete for these patients. 

Beaumont-Spectrum Merger in Michigan

EARLIER THIS YEAR, ANOTHER MAJOR TRANSACTION combined two large integrated delivery networks (IDNs) in Michigan. On Feb. 1, Beaumont Health of Southfield and Spectrum Health of Grand Rapids completed their merger. 

Post-merger, the entity operates under the temporary name of BHSH Health. Both Beaumont and Spectrum continue to use their original names within their respective service regions. 

BHSH Health immediately became the largest health system in Michigan. Along with 22 hospitals of more than 5,000 licensed beds, BHSH has more than 300 outpatient locations, 11,500 affiliated and employed physicians, 64,000 employees, and annual revenue that exceeds $13 billion.

Of note, BHSH has a health plan, Priority Health, that serves 1.2 million beneficiaries. This positions BHSH to further evolve into a one-stop, fully-integrated healthcare solution that provides both insurance coverage and the needed medical services, similar to Kaiser Permanente and Geisinger Health, for example. 

This merger of two already-large IDNs in Michigan confirms that hospital consolidation is a continuing trend. It can be expected that BHSH will want to standardize test menus and instrumentation across all its laboratory facilities. That may include consolidating test volumes into one or more large core laboratories as a way to reap economies of scale that also increase the productivity of its medical technologists. This would be most attractive at this time, due to the recognized shortage of skilled laboratory professions throughout the United States.

It is uncertain what role the pandemic played in this merger, which was announced in June, 2021, more than a year after the onset of the COVID-19 outbreak.

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