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Hospital mergers are reshaping the healthcare landscape. Here’s what goes into a merger and how federal regulators oversee the process.
Hospital mergers continue to dominate the headlines. For over a decade, they’ve been on the rise, and mergers between physician groups are accelerating even faster. The result? Large, powerful health organizations that influence patient decisions, system protocols, and prices. But how exactly do these mergers work, how are they regulated, and is this trend beneficial for providers and patients?
What Is a Hospital Merger?
A merger typically refers to two organizations combining to form a new entity or continue under one organization’s leadership. In contrast, an acquisition usually involves one organization purchasing and absorbing another without creating a new entity. Healthcare systems often pursue mergers or acquisitions as part of their growth strategy—whether to expand into new regions, increase the number of providers, or streamline operations.
How Does the Hospital Merger Process Work?
Let’s say one hospital plans to merge with another, combining their resources and operations under one system. The parties exchange financial information and draft a letter of intent along with confidentiality agreements. A business appraiser then prepares valuation models to estimate the value of the merging entity. With this information, the hospital system develops an offer.
Once an offer is on the table, the parties begin negotiations. At this stage, they enter due diligence—a thorough review of all aspects of the entities involved, including financial records, business operations, and key assets. If patient information is shared, it is typically anonymized or aggregated to comply with HIPAA. The goal is to confirm the accuracy of the initial information and ensure the hospital system’s valuation holds up under scrutiny.
How Are Hospital Mergers Regulated?
Because mergers can disrupt a fair and competitive marketplace, especially when frequently occurring within one industry, they’re subject to regulatory review. If the entities meet certain size and transaction value thresholds, they must comply with the Hart-Scott-Rodino (HSR) Act by reporting the deal to federal regulators. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) oversee antitrust enforcement in healthcare markets, reviewing most major transactions to prevent anti-competitive practices that could harm consumers. Either agency can intervene to block a merger that they believe would “substantially lessen competition.”
If the agencies decline to act and the waiting period expires, the merging parties can proceed. A final purchase agreement is drafted, and the merger is effectively complete once signed by both parties. The management teams then focus on integrating the two businesses.
Do Hospital Mergers Benefit Providers and Patients?
Supporters of hospital mergers argue that consolidation boosts efficiency, quality, and access. They say that larger systems offer more specialists, better technology, and improved coordination of care. Mergers may also lead to standardized clinical protocols and shared electronic medical records.
However, many healthcare providers and economists warn that consolidation may harm consumers. As hospital systems merge, they control a larger share of the market, reducing competition. This often allows them to raise prices and wield more negotiating power over insurance companies. Numerous studies have shown that hospital mergers lead to higher patient costs—typically around 6% to 7%—across different regions and markets. Additionally, some studies suggest that mergers may reduce physician autonomy, shift priorities toward administrative efficiency, and increase provider workloads.
Get Legal Support
Maybe your physician practice has received a letter of intent, or you’re considering a merger with another local practice. A healthcare attorney who understands the industry’s complexities can help you evaluate your options, navigate negotiations, and protect your interests.
Jackson LLP works with small and medium-sized healthcare businesses in several states across the U.S. Schedule a free consultation with one of our attorneys to learn how we can support you through a successful merger or acquisition.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
