Kaiser Permanente announced one of the biggest mergers in recent hospital M&A history on Wednesday. The California-based integrated health system, which owns 39 hospitals, said it plans to acquire Pennsylvania-based Geisinger Health. The financial terms of the deal were not disclosed.

Geisinger comprises 10 hospitals, as well as a health plan with more than half a million members. The health system has 25,000 employees and more than 1,700 physicians. Should the transaction between Kaiser and Geisinger go through after review by federal and state regulators, the combined health system would result in more than $100 billion in revenue.

The announcement is in line with the trend of cross-market mergers, which refer to deals that combine health systems located in different areas, with little or no market overlap. Still, it is notable that Geisinger — known for being proudly local — felt the need t0 become part of an out-of-state entity, said a healthcare executive who declined to be named.

Kaiser’s move to acquire Geisinger is part of a larger plan. Geisinger will be the first health system to join Risant Health — a new company Kaiser launched on Wednesday to operate nonprofit health systems. 

Risant’s mission is to improve population health by scaling access to value-based care and coverage at health systems. The plan is for Risant to acquire a portfolio of nonprofit community-based health systems across the country.

“Through Risant Health, we will make our value-based care expertise, technology and services available to community-based health systems, like Geisinger, to strengthen their ability to provide value-based care models with a focus on high-quality and equitable health outcomes,” Kaiser CEO Greg Adams said in a statement.

Geisinger and the other health systems that will join Risant will maintain their names and continue to operate as regional health systems, but they will have a greater focus on value-based contracts, Kaiser said in its announcement. 

Kaiser said it expects to invest $5 billion in Risant and fold five or six health systems into the company over the next five years.

Rebecca Springer, senior healthcare analyst at PitchBook, said in a written statement that Kaiser’s planned acquisition of Geisinger is noteworthy not only because it it’s the largest health system merger in years, but also because comes at a time when both federal and state regulators have “ratcheted up antitrust scrutiny of health system consolidation.”

If the deal closes, Springer said it will “send shockwaves” through the value-based care ecosystem, which has so far relied on venture capital- and private equity-backed companies. Over the past decade, organizations that enable value-based care, such as Agilon Health, Privia Health and Aledade, have grown rapidly by providing wraparound services for independent primary care groups and assuming downside risk. These companies allow practices to enter more sophisticated value-based care contracts with payers than they would otherwise be able to. In Springer’s view Risant is effectively offering the same service but for health systems.

“Kaiser, an integrated payer-provider, is well positioned to create such an offering and potentially compete with other service providers such as UnitedHealth’s OptumInsights,” she declared.

Geisinger also has its own health plan though unlike Kaiser, does accept patients with other insurance.

As the first health system to become part of Risant, Geisinger will help develop the company’s strategy and operational model. Geisinger CEO Jaewon Ryu will transition from his current position to a new role as Risant’s CEO once the transaction closes.

“Geisinger will be able to accelerate our vision and continue to invest in new and existing capabilities and facilities, while charting a path for the future of American health care, through Risant Health,” Ryu said in a statement.

Kaiser and Geisinger’s planned mega-merger comes amid a particularly active time in hospital M&A history. Hospitals and health systems announced 15 M&A transactions in the first quarter of 2023, which almost matches the 17 transactions announced in the fourth quarter of 2022, according to the latest Kaufman Hall research. 

Consolidation transactions have been plentiful so far in 2023 because many hospitals feel they need to restructure amid mounting financial pressures. Both Kaiser and Geisinger reported operating losses in 2022 — Kaiser’s was $4.5 billion and Geisinger’s was $842 million.

Cross-market mergers have also become more common in the last year — such as the Kaiser-Geisinger deal and last year’s mega-merger between Atrium Health and Advocate Aurora Health. 

Last month, Sanjay Saxena, global leader of Boston Consulting Group’s healthcare division, told MedCity News that he thinks more health systems will continue to pursue cross-market mergers. From a regulatory perspective, these deals are more favorable because they don’t attract as much attention from the Federal Trade Commission on anticompetitive grounds.

The desire for scale to achieve a better financial position is also a key motivator for such deals, Saxena said. Many health systems believe that if they gain volume, they will be able to exert more leverage over payers and suppliers, he declared.

Another analyst — Nathan Ray, partner at consulting firm West Monroe — thinks that the Kaiser-Geisinger deal could “be a first play in a new mid-tier system consolidation wave.”

He noted that the deal will bring Geisinger “some greater attention and brand shine,” as well as allow Kaiser to expand its footprint to the East Coast. The transaction also gives Risant “some cache and maybe some goodwill and entity separation to keep it from scrutiny,” Ray pointed out.

Photo: Natee Meepian, Getty Images