On April 26, 2023, the California-based healthcare giant Kaiser Permanente announced a $5 billion “mega deal” to acquire Pennsylvania health system Geisinger Health.¹  Kaiser also announced the formation of a new nonprofit health system, to be called Risant Health.² Geisinger Health will be the first health system under the umbrella of Risant Health, although Kaiser aims to add approximately five more systems to the entity.³ This Health Capital Topics article will review this mega deal and discuss what this transaction may mean for hospitals and health systems.

While Geisinger has maintained a strong market share in central and northeastern Pennsylvania, it has been slow to gain any traction outside of its normal service areas.⁴ In 2022, Geisinger reported $239 million in operating losses, as its expense growth increased at twice the rate of their revenue gains.⁵ Kaiser – a $95 billion health system with locations in eight states and Washington, D.C. – may be able to help reduce Geisinger’s operating costs post-acquisition, including in supply chain management, purchasing agreements, and other administrative expenses.⁶ Geisinger, which has its own insurance operation, may also benefit from Kaiser’s 12.6 million member health plan, as well as its capacity for data analytics. This acquisition will result in a healthcare “behemoth,” with annual revenue in excess of $100 billion, nearly 50 hospitals, and over 25,000 physicians.⁷

When this transaction will close is to be determined, as regulatory agencies have yet to announce whether they will allow the deal to move forward.⁸ In general, health systems have been pursuing mergers and acquisitions more carefully (highlighted by the number of hospital transactions decreasing each year since 2019⁹), stemming from the Federal Trade Commission (FTC) and their increased scrutiny of hospital transactions.¹⁰ For example, in June 2022, the FTC filed a lawsuit to block a proposed transaction by HCA Healthcare to acquire five Utah hospitals in the Steward Health Care System, resulting in HCA Healthcare calling off the acquisition.¹¹ The FTC asserted that the HCA-Steward transaction would have reduced the number of health systems that offer acute services from three to two and increased HCA’s bargaining power with insurers, resulting in higher prices for consumers in the form of increased premiums, deductibles, and out-of-pocket expenses.¹² The same week that HCA scrapped its acquisition plans, New Jersey-based RWJBarnabas Health announced its decision to abandon its acquisition of St. Peter’s Healthcare System in New Brunswick, NJ.¹³ The parties originally announced their plans in September 2020,¹⁴ and the FTC unanimously voted to file suit opposing the acquisition on June 2, 2022 (the same day that it voted to file suit in the HCA/Steward case), arguing that combined, the entity would have approximately 50% market share for general acute care services in Middlesex County, which is sufficient to result in a presumption of harm under federal antitrust laws.¹⁵ These two scrapped transactions are certainly not the only ones, with a greater number of hospital transactions being abandoned after pushback from federal and state authorities.¹⁶ However, the Kaiser-Geisinger deal is dissimilar from these deals in the sense that the two health systems are geographically separate; former Department of Justice healthcare antitrust attorney and health law professor Thomas Greaney believes that the deal could be pro-competitive, as currently “only four major insurers are handling national accounts.”¹⁷

If the merger between Kaiser and Geisinger is allowed, and Geisinger is able to reduce its overhead, it could allow for more resource allocations to service expansion and care improvement needs.¹⁸ The potential threat of such a merger may place pressure on other health systems within Pennsylvania (and even across the mid-Atlantic and Northeast), such as the University of Pittsburgh Medical Center (UPMC), to expand through mergers, acquisitions, or other affiliations, in order to remain competitive.¹⁹ It may also create a “new category of health services organization” – geographically disparate health systems that have centralized resources and capabilities.²⁰

The launch of Risant marks the beginning of a new era for value-based care, where providers are incentivized to offer lower cost, high quality care, with pay dependent on the health outcomes of patients.²¹ While much of the healthcare industry continues to operate on a fee-for-service model, value-based care will allow organizations like Risant that control much of the healthcare supply chain, from the coverage of care to the delivery of it (often referred to as “payviders”) to incentivize their providers to focus on preventative healthcare and population health.²² Kaiser’s strategy may spur health systems to think about expansion in more creative ways and motivate health systems and hospitals to think outside the box when considering growth.