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By Liv Osby

Prisma Health and Blount Memorial Hospital in Tennessee finalized their partnership on Dec. 1, launching a new era of market expansion for South Carolina’s largest health care system. 

“Health care is shifting to a multi-region model and the number of systems operating in multiple states is rapidly increasing,” Prisma CEO Mark O’Halla said in a release. 

“Expanding to desirable nearby markets with respected regional hospitals like Blount Memorial strengthens our scale, capabilities, relevance, resources, and attractiveness to top talent and industry partners,” he added.

“This partnership promises to bring expanded resources and innovative care to our community,” said Jonathan Smith, interim CEO of Blount Memorial, “and we are eager to build a stronger future together.”

The last three decades have seen a lot of concentration among health systems nationwide, said Lovisa Gustafsson, vice president of the Controlling Health Care Costs program at the Commonwealth Fund. 

In fact, more than 2,000 mergers have occurred since 1998, she said, noting the top 10 make up about 25 percent of the entire hospital market.

“The majority of markets are highly concentrated at this point,” she said. “And you see more and more of these massive systems, when two large systems combine to make one big one.”

New mergers are being announced every month, she said.

Indeed, management consulting firm Kaufman Hall says 27 hospital merger and acquisition transactions were announced in the third quarter of 2024 – the most since 2017.

“While the increasing number of transactions in Q3 2024 is getting us back to a normal level of activity, we are observing various challenges and opportunities in the market,” Anu Singh, the company’s managing director and Mergers & Acquisitions practice leader, said in a release. 

“The motivations for entering into transactions and partnerships vary,” he added. “As we are seeing the number of strategic transactions accelerate, we are also seeing some organizations that face financial challenges are struggling to find a partner.”

Hospitals merge in three basic ways, Gustafsson said.

One way is called horizontal, where one hospital buys another in the same market, she said. Another is vertical, where hospitals buy physician practices. The third type – cross-market mergers – occur when one hospital acquires another in another region, creating large multi-state and sometimes international systems, she said.

“Originally, more were horizontal,” she said, “but over time, as there are fewer hospitals to acquire, there are more vertical and cross-market mergers.” 

It’s rare for a South Carolina hospital to acquire one in another state, said Thornton Kirby, CEO of the South Carolina Hospital Association.

“The only major acquisition in the last couple of years I can think of is the Novant acquisition of several Tenet hospitals,” he said. “I don’t know of any other ones.”

In November 2023, North Carolina-based Novant Health acquired Hilton Head Hospital, Coastal Carolina Hospital, and East Cooper Medical Center, all in the Lowcountry.

Kirby said that between 2016 and 2022, lots of hospitals in the state changed ownership. But that has slowed down since because the state went from a relatively independent hospital community to a more consolidated hospital community, he said.

“Now that most of the hospitals have been aligned, I don’t think you’re going to see the activity level like it was before,” he said. “We don’t have that many unaligned hospitals anymore.”

While it’s hard to know what drives these deals because outsiders don’t know the private discussions, hospitals say they consolidate to improve efficiencies, lower costs, and provide better care coordination, Gustafsson said. 

But the evidence shows that mergers increase prices and overall spending, and fail to improve quality of care, she said.

“There could be some economies of scale, but they’re not leading to reduced health care spending,” she said. “We don’t really see cost savings because prices are going up and overall spending is going up.”

Another reason to consolidate is that as a bigger player with a large number of patients over a broader area, it’s easier to negotiate with insurers for higher payments, she added.

“A hospital that has 20 beds and a daily census of seven or eight people doesn’t have the market clout that Prisma or MUSC has,” Kirby said.

Prisma Health is the largest health care system in South Carolina with 18 hospitals across 305 practice sites in a 21-county market.

Blount Memorial is a 304-bed acute care hospital in Maryville, Tennessee, outside Knoxville, with more than 2,700 employees and 200 physicians over 20 locations in Blount and Monroe counties. 

The Blount County Commission on Nov. 14 unanimously approved the deal with Prisma and it was finalized Dec. 1. 

The details of the deal were not disclosed.

But Gustafsson said every deal is different in terms of how they’re financed. 

Some systems are billion-dollar operations that have the cash to purchase other hospitals, but they can also take out bonds and engage in other financing.

And these arrangements can have impacts on patients and employees, she said, as consolidation can lead to fewer provider and employment options.

In the case of a cash-strapped hospital facing closure, being acquired could mean saving health care services for a region, she said.

But sometimes after a hospital has been bought, services are ended, Gustafsson said, particularly labor and delivery and psychiatric services.

“So, when these services are ended, it can lead to real access issues for patients who have to travel really far,” she said. “Oftentimes, those most impacted are rural people, people of color, poor people. It is definitely concerning.”

South Carolina has seen hospitals close some services, such as obstetrics, because of the economics of offering that service in a small community, Kirby said.

“Our state requires that if a hospital has labor and delivery services, it has to be open 24 hours a day,” he said. “But you can only do that if you have enough deliveries to support the expense. If you only have a couple hundred births a year, it doesn’t work. It’s the hard reality of the way health care is financed in our country.”

On the other hand, Gustafsson said, there are hospitals that otherwise might have closed without being acquired.

“Sometimes we do see a system failing,” she said, “and a more resourced system can buy them and help them.”

Consolidation has prevented the closure of some hospitals in South Carolina, Kirby said. For instance, when Self Regional in Greenwood aligned with hospitals in Edgefield and Abbeville, it brought stability to the two smaller hospitals, he said. 

The same thing happened when Spartanburg Regional Healthcare System took over Union Medical Center and when the Medical University of South Carolina acquired some small hospitals, he said.

“When you take a hospital in a precarious financial position and bring them into a system that has greater resources, they’re therefore much less fragile,” he said.

It’s not always driven by a large system’s desire to get bigger, but the fact that smaller, independent hospitals can’t afford to modernize, he said. So it’s easier for them to become part of a larger system that’s already made investments in costly technology, such as electronic medical records and cybersecurity, he said.

“If … you’re faced with a $10 million IT upgrade, you can’t do that,” he said. “But that’s where the market is going. You have to have the latest equipment to take care of patients and the latest technology.” 

South Carolina has about 100 hospitals, Kirby said. Some 65 to 70 are acute care facilities while the rest are specialty, rehabilitation, long-term or psychiatric hospitals, he said.

The financial stability of hospitals is critical to their survival, Gustafsson said, and to the communities they serve.

“We want things to be stable,” she said.