Last week, New Mexico-based Presbyterian Healthcare Services and Midwest-based UnityPoint Health signed a letter of intent to merge. This is one of many cross-market mergers that health systems have explored in recent years, and one analyst — Sanjay Saxena, global leader of Boston Consulting Group’s healthcare division — thinks these kinds of announcements will continue in the coming years.

But that doesn’t mean the deals will be sealed. A significant chunk of these intended mergers will end up being called off, Saxena said in an interview after UnityPoint and Presbyterian announced their plans.

UnityPoint previously had plans to merge with South Dakota-based Sanford Health, but the $11 billion deal was scrapped in 2019. Now UnityPoint is trying its hand at a mega-merger again — its proposed marriage with Presbyterian would result in the combined entity employing more than 40,000 people, including about 3,000 physicians and advanced practice clinicians.

Both UnityPoint and Presbyterian declined requests for comment. But in a statement the health systems said the deal would allow them to make “greater investments in clinical excellence, digital innovation, workforce development and value-based care while lowering overall administrative costs.”

Last year, Presbyterian reported an overall loss of $370.7 million on revenues of $5.5 billion. The nine-hospital health system has a bed capacity of 1,017.

UnityPoint Health operates 20 regional hospitals across Iowa, Illinois and Wisconsin, along with 19 community network hospitals. The health system reported a $441.3 million net loss on a revenue of $3.7 billion for the nine months ending September 30. 

There have been other cross-market megadeals in recent history, Saxena pointed out. For example, Atrium Health and Advocate Aurora Health’s merger which closed in December, created a 67-hospital system across parts of the South and Midwest. Another large transaction that closed last year — between Utah-based Intermountain Health and Colorado-based SCL Health — created a 33-hospital system.

Saxena thinks more hospitals and health systems will continue to pursue cross-market mergers. From a regulatory perspective, these deals are more favorable because they don’t attract as much attention from the Federal Trade Commission on anticompetitive grounds. The desire for scale to achieve a better financial position is also a key motivator for such deals.  

“If you look at the financials for most health systems, they’re struggling. And I’m not sure I entirely subscribe to this logic, but there’s a feeling that if we get bigger, we will be stronger and be able to weather the storm. So there is inherently a belief that bigger is better,” Saxena declared.

Many health systems believe that if they gain volume, they will be able to exert more leverage over payers and suppliers, he added. 

Though Saxena thinks more health systems will seek cross-market deals, he also believes that many of these deals will be abandoned due to health systems realizing they’re not ready to make the sacrifices needed to reap the benefits of a megamerger.

Separately, other issues also creep up — such as who will be in the C-suite, where the headquarters will be and who will get the dominant number of board seats, Saxena pointed out. But positions — and sometimes duplicative service lines or programs — need to be cut in order for newly merged health systems to reap the benefits of scale. 

“There is always a question of who is in control after these transactions come together. It’s one thing to say you’re going to come together, and it’s another thing to decide who is the acquiree versus the acquirer,” he explained. “I know sometimes they try to make them equals, but there’s really no such thing as a transaction of equals. And that’s why co-CEOs don’t work.”

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