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INSIGHT: Healthcare Startups and Recent NFP Health & Hospital System Mergers & Acquisitions

by Stephen C. Hanson

What is Happening?

With the end of the pandemic as a declared public health emergency and significant pressures mounting for not-for-profit (NFP) health and hospital systems, a new wave of mergers is occurring. “Traditional” regional mergers are continuing and there are new mergers that are national or large multistate in approach. Startups in the health space in general and certainly those that intend to work with these new entities need to understand the implications.

Mergers & Acquisitions

Three Types of Mergers

1. Traditional regional mergers

These involve contiguous territory and may be multistate or within a state. ⦿ Intermountain and SCL Health in Utah, Colorado, and Nevada ⦿ Spectrum and Beaumont in Michigan

⦿ Sanford and Fairview/University of Minnesota in the upper Midwest

2. “Leapfrog” mergers

These are relatively new and do not involve contiguous territories. In the two examples, there are multiple states between the systems involved

⦿ Advocate/Aurora and Atrium to be named Advocate: Illinois/Wisconsin and the Carolinas.

⦿ UnityPoint and Presbyterian: Iowa/Illinois and New Mexico

3. National or potentially national mergers The intent here is to create a national presence even if not every state may be included.

⦿ Dignity Health and Catholic Health Initiatives formed CommonSpirit Health in 2019 with coverage in at least twenty states.

⦿ The merger of Kaiser and Geisinger to create a new company, Risant, which plans to integrate with leading systems to create a national footprint. Specific geographies to be served are yet to unfold.

It’s All About Scale

There are many reasons for these mergers, but the major driver is the need for scale, given the operating losses and continuing challenges most systems are facing even now post-COVID. While the more traditional regional mergers are also seeking potential clinical efficiencies and perhaps even continued/expanded clout with insurers and employers, every merger is seeking scale.

This increased scale is very focused on improving operating margins, both enhancing net revenue and reducing expenses. A June 6, 2023, Becker’s Hospital Review, lists the financial performance of thirty hospital systems for the first quarter of 2023. Of the 25 NFP systems for which this data was available, only ten had operating margins at or above 1%. Of these the mean quarterly revenue was $3.0 billion, likely yielding an annualized revenue in the $10-12 billion range. Since many health systems are not of this size yet, there is an incredible opportunity for further consolidation.

The areas of emphasis for truly creating scale, not just size, need to include supply chain, technology of all types, revenue cycle, and human resources synergies among others. For those systems with health plans, like Kaiser/Geisinger, there are also opportunities to operate these plans more efficiently in an integrated manner.

Please note that size alone does not guarantee success. Three of the largest NFP systems on the list generated significant operating losses. Therefore, it is critical that true operating efficiencies and synergies are achieved from the increasing size of these new systems.

Other Reasons

The systems involved will often mention other goals for their increasing size. Advancing the cause of value-based care and developing newer methods of delivery including hospital-at-home/remote patient management and integrated mental/physical care, all on a much more consolidated basis, will be a major goal for many. In addition, improving the health of the communities the systems serve and providing a broader emphasis on issues of diversity/equity/inclusion will be important for many.

How Should Healthcare Startups React?

First, company leadership should learn where and by whom the decisions to purchase its products and services will be made. Will they be made in a corporate HQ, a regional office, perhaps a local hospital or physician practice as a pilot? In addition, whatever the current model, how may this change over time? Companies should also be prepared to have much more CFO and other nonclinical input in addition to that of clinicians for patient care-related products than they may be used to.

Second, the company should ensure its products meet the stated goals for the system. What are the measurable impacts it can have on a health system’s operating margin helping it achieve meaningful scale? What new technology, including, yes, artificial intelligence of various sorts, does it bring? How will the company help a system continue the inevitable move to value-based care? Except for Kaiser/Geisinger and Presbyterian of New Mexico, the system mergers referenced are between organizations still on the journey to value-based care and their C-suites will likely need help in that area. How does the company assist in this journey and the movement to newer methods of health delivery?

Finally, it is very likely that the systems a company is serving or seeking to serve will be very public about DEI and creating healthier communities. The company needs to reflect its beliefs in these areas. The American Hospital Association’s Health Equity Roadmap is a useful tool in dealing with the former.


This consolidation on the NFP side will continue for the foreseeable future with larger and larger systems serving multiple states. Of course, the regional mergers will continue as well, with some of these in turn joining the larger systems over time. Empactful Captial is making sure the CEOs and Boards we work with stay on top of this trend and ensure that the company’s products and services are targeted to take advantage of it. Scale, operating margin impact, and value-based care will be the name of the game.

Stephen C. Hanson, Operating Partner, Empactful Capital

Stephen C. Hanson, MPH, LFACHE

Operating Partner, Empactful Capital


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