As Medical Care Shifts Out of Hospitals, Companies Plan Deals

By FeaturesDow Jones Newswires

A rapid-fire spate of deal-making among health-care companies in recent weeks is poised to accelerate the shift in how and where Americans get medical care -- away from hospitals and toward clinics, doctors' offices, surgery centers and even drugstores.

Potential mergers disclosed since early December involve companies with more than $550 billion in cumulative revenue, a sign of how large a swath of the industry is caught up in efforts to reshape the landscape.

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Tuesday, Humana Inc. and two private-equity firms confirmed they plan to acquire Kindred Healthcare Inc. in a deal valued at around $810 million, or $4.1 billion including debt; they plan to split the health-care company in two, hiving off its long-term care and rehabilitation hospitals from its other business. The same day, Tenet Healthcare Corp. announced it is exploring a sale of its health-care business-services arm, Conifer Health Solutions, amid pressure in its core hospital unit.

"The industry is going through a version of upheaval," said Kindred Chief Executive Benjamin A. Breier. "Providers across the country are trying to figure out what their place in the world is going to be....We think this transaction really puts us on very solid footing to meet those challenges in the future."

The developments underscore the shift in power to health-care companies that aim to change how and where patients get care and drive down costs.

Managed-care companies such as Humana, which will have an ownership stake in Kindred's home-care and hospice unit but not in its facilities, are plunging deeper into the business of delivering health care outside the walls of hospitals. They are seeking to squeeze out costs by speeding up the decline in hospital use, which is already under way.

CVS Health Corp., with its roughly $79 billion acquisition of Aetna Inc., wants patients to stay out of emergency rooms and do more at revamped, upgraded drugstores. UnitedHealth Group Inc.'s $4.9 billion purchase of DaVita Inc.'s doctor group is part of its plunge into owning physician practices, clinics and outpatient surgery centers.

The trend puts hospital companies on the defensive. Some are bulking up to form ever-larger players -- nonprofits Ascension and Providence St. Joseph Health are in talks to create the biggest hospital owner in the U.S., while Dignity Health and Catholic Health Initiatives announced they are forming their own new nonprofit hospital giant.

Hospital systems seek heft to cut costs and do battle with managed-care firms over their future role and payment rates, while they continue to invest in their own outpatient settings, looking to capture more of the patients their main facilities may lose.

At the same time, some hospital owners need to shore up their finances, as is the case with Kindred, which is weighed down by debt. Tenet also has a heavy debt load, in part from a 2013 acquisition of a rival hospital firm.

On the hospital side, "they're basically increasing their leverage" in negotiations with insurers by forming ever-larger systems, said Glenn Steele, former CEO of Geisinger Health System, a large integrated hospital and health-plan operator. "If they get big enough, they have be part of any care-giving network."

The insurer deals "are getting some of the payers closer to care givers...trying to jump over the acute care and go to where a lot of care will be given," Mr. Steele said.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Melanie Evans at Melanie.Evans@wsj.com

(END) Dow Jones Newswires

December 19, 2017 16:03 ET (21:03 GMT)