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Ascension and Providence St. Joseph in Talks to Form U.S. ‘s Largest Hospital Operator

Hospital operators Ascension Health and Providence St. Joseph Health are in talks to merge and create the nation’s largest hospital chain, according to a Wall Street Journal report on Sunday.

A merger between St. Louis-based Ascension, and Providence, of Washington, would have 191 hospitals, many clinics and just under $45 billion in annual revenue, according to the WSJ. The combined, not-for-profit system would also dethrone the nation’s largest pure hospital operator, the Hospital Corporation of America (HCA), which has 177 hospitals and reported $41.5 billion in 2016, according to Modern Healthcare data.

The WSJ reports that though the companies have been talking for months, a merger is far from assured, according to those familiar with the matter.

Approximately 60% of U.S. hospitals are ‘private nonprofits’, a status that exempts the companies from some taxes in exchange for providing community benefits like free care for low-income patients. The other 40% of U.S. hospitals are government-owned or for-profits, including HCA, as well as Tenet Healthcare Corp. (THC), and Community Health Systems Inc.

A merger would be consistent with a broader trend toward mega-mergers in health care, albeit one that has had a few bumps on the road. CVS Health is buying Aetna for $69 billion with the intent to pushing down the use of costly services like emergency rooms. Catholic Health Initiatives and Dignity Health are merging, bringing together 139 hospitals between them and a combined revenue of $28.4 billion. Two major Midwestern hospital operators, Advocate Health Care and Aurora Health Care, are combining to lead to more cost-effective operations. However, two big mergers among insurers (between Humana and Aetna, and Cigna and Anthem) both collapsed earlier this year amid antitrust concerns and strategic uncertainties related to government plans for reform.

While the industry’s wave of mergers could mean more efficiently managed networks of medical care–which proponents say could cut unnecessary spending– critics are concerned consolidation will mean higher prices and less choice, according to the WSJ.

The Ascension-Providence deal, if completed, could change the dynamic in relationships between big hospital operators and health insurers, two sectors which are making seeking scale to increase their power in negotiations over the cost of care and control over patients, said the WSJ.

“It can be a vicious cycle where consolidation happens in one place, and then other players say, ‘I need to consolidate too,’” said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University to the WSJ. “Everybody’s looking for ways to increase their negotiating leverage.”