Latest / Becker’s Healthcare Podcast / Sutter Health’s Major Merger Plans and AdventHealth’s Financial Strength with Alan Condon

Transcript

Sutter Health’s Major Merger Plans and AdventHealth’s Financial Strength with Alan Condon · Becker’s Healthcare Podcast

• 0:00
  This is Scott Becker with the Becker's Healthcare
• 0:02
  podcast.
• 0:03
  I'm thrilled today to be visiting with Ewan
• 0:05
  Condon,
• 0:06
  Ewan's editor in chief at Becker's Healthcare, a
• 0:09
  tremendous leader. We are talking on Saint Patrick's
• 0:12
  Day. He just expressed that he can't wait
• 0:14
  to get back to Ireland
• 0:16
  for the World Cup that that that match
• 0:18
  he's gonna see in Ireland, and will be
• 0:20
  he'll be cheering for the Irish national team.
• 0:22
  I take it, but we're not gonna talk
• 0:24
  about that today. We're gonna talk about health
• 0:26
  care today. So if you want, we could
• 0:27
  talk about Saint Patrick's Day and the Irish
• 0:29
  National team too. Alan, take a moment and
• 0:32
  and tell us a little bit about what
• 0:34
  you're watching in health care right now, and,
• 0:36
  and thank you for joining us. Yeah. Always
• 0:39
  a pleasure. Maybe we'll do a separate podcast
• 0:41
  another day, Scott, on the the Irish staff
• 0:43
  still there. But,
• 0:45
  some big, big health care finance news.
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  Really excited to kinda hop on and talk
• 0:49
  through a couple key stories today. So I
• 0:52
  think first and foremost, this is a huge,
• 0:54
  huge story. Just kind of, just announced this
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  afternoon,
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  and that's, Sutter Health, of course, fantastic health
• 1:00
  system headquartered in California,
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  signed a letter of intent
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  to pursue a merger with Allina Health headquartered
• 1:09
  in Minnesota.
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  So this this deal, sign a letter of
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  intent, essentially, going through the exploratory phase here,
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  would essentially create a 40 hospital
• 1:19
  nonprofit health system that was planned in California,
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  Minnesota. Allianaw also serves at Acadia Sears, a
• 1:24
  lot of patients in Wisconsin
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  as well. So
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  what really bring together two really large regional
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  systems under the Sutter Health brand,
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  with Aligna Health essentially operating as Sutter Health's
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  Upper Midwest division.
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  So, again, this is a very, very early
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  stages, but a really exciting deal.
• 1:44
  They create a large multistate system.
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  I think in terms of the leadership structure
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  and how this will be formatted,
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  Allina Health CEO Lisa Shannon will continue to
• 1:53
  lead the health system or that division,
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  while Warner Thomas, fantastic leader of Sutter Health,
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  he would remain presidency of Sutter Health and
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  lead the combined
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  40 hospital
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  health system. I think a huge, huge investment
• 2:06
  is gonna be undertaken here, so it should
• 2:08
  just get over the line. The health system's
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  plan to invest more than $2,000,000,000
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  into Minnesota,
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  into Western Wisconsin,
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  and that investment would essentially focus on expanding
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  ambulatory care sites, growing specialty services, and really
• 2:22
  improving access to care in the Midwest division.
• 2:25
  AI and digital health, unsurprisingly, are gonna be
• 2:28
  central to this strategy. Sutter Health's a very
• 2:31
  tech forward, very impressive health system in California.
• 2:34
  So I think leaders have said that the
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  combined health system will really look to leverage,
• 2:39
  Sutter Health technology ecosystem
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  and Minnesota's
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  med tech expertise to really advance AI and
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  digital tools. So some of those key priorities
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  would really focus on,
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  reducing administrative
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  burns, improving scheduling,
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  re helping out and enhancing patients and clinician
• 2:57
  experience across the combined system as well.
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  So huge, huge deal. And I think,
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  again, very, very early doors just just announced,
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  and there's a lot to go in terms
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  of due diligence phase, the regulatory issues to
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  to to pass
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  through. But it it is interesting when you
• 3:12
  think about
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  where where sort of health is headquartered, of
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  course, in California, jumping over to the Midwest,
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  taking a leaf out of some similar health
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  systems, which you've seen Prime Healthcare, also headquartered
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  in California. They've they've expanded into Illinois for
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  the first time last year with those acquisition
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  of the Ascension facilities,
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  recently acquired a health system in Maine.
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  So certainly a really interesting deal.
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  But lot lot to come on this, but
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  just, really, really fascinating to see what comes
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  with this one down the line.
• 3:40
  No. That's absolutely,
• 3:42
  fantastic
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  and amazing to see sort of the the
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  mindset. Because in the old days, people did
• 3:47
  these mergers. They would do it with another
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  local system
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  to get more market share, to have more
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  market alignment in an area. These are very
• 3:55
  different markets.
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  Some of the thoughts around that, Alan, any
• 3:59
  any
• 4:00
  thoughts on what drives this merger?
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  Obviously, there'll be a bigger overall system,
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  but it won't help them in specific market
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  negotiations with the payers or specific market presence,
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  but will the two plus two, one plus
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  one strengthen each other? How do you think
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  about that or look that? It's more like
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  some of the advocate mergers where the North
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  Carolina Atrium merged with the Midwestern
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  advocate system to create a larger system,
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  but not necessarily in the same neighborhoods. Any
• 4:27
  thoughts here on this on this merger?
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  Yeah. I it is fascinating. I think, essentially,
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  the the jury is still kind of out
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  on how these types of noncontiguous,
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  nonadjacent
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  mergers work. I mean, we've seen the likes
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  of advocate merger. It's across six states. We're
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  kind of all kind of adjacent to one
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  another.
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  But I think there is such a big,
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  interesting dynamic in terms of the economies of
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  scale that comes with it. But no doubt,
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  you're jumping in a completely different payer environment,
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  completely different cultural
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  mix of two systems. No doubt there's a
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  lot of due diligence that goes into these
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  deals, especially with the leadership of Sutter, a
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  line of two fantastic systems, but definitely come
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  with
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  unique challenges, I would say, than maybe acquiring
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  another health system within your state or even
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  maybe one market or one market or two
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  markets over. But unique challenges, no doubt, that
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  come with these, you know, happen from one
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  from one part of the country to the
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  next. So, it'd be interesting to see if
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  we take and I've heard off the record
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  from from conversations with other CEOs and other
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  CFOs
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  recently, not to kinda name many names, but
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  this is,
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  certainly seems to be more in the in
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  the mindset, more in the thinking of some
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  of these regional systems are considering
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  now more than ever kind of, does a
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  deal make sense if we jump two, three
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  states over?
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  Of course, there's a lot of a lot
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  of due diligence that needs to go into
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  these deals. But seems like, are we gonna
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  see more folks take a leaf out of
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  the the playbook here at Prime Healthcare, of
• 5:53
  Sutter Health, of Allina?
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  Certainly interesting to keep, keep a close eye
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  on these and see how these deals turn
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  out, but certainly a lot of questions still
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  to be answered.
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  No. Absolutely fascinating. You know, tell me, are
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  there other stories you're watching closely currently?
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  Yeah. Absolutely. I think,
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  I'd love to focus just, one bit down
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  on AdventHealth.
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  So, talking about scale, I think is a
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  nice segue into into AdventHealth. Just fantastic leadership
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  here. We're just kinda honing in on their
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  finances. So
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  recently reported their their full year results for
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  2025.
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  We we kinda covered the the spectrum of
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  the for profit systems quite recently, but AdventHealth,
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  of course, huge faith faith based system,
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  headquartered in Florida,
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  operates, I believe, just short of 60 hospitals
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  across nine states. So huge kinda regional national
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  system here.
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  A really, really impressive,
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  financial results for 2025 just like what they
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  reported in the year previously. So came out
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  of the year with a an operating income
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  of a $2,700,000,000,
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  up from about $2,300,000,000
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  in 2024.
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  And its operating margin,
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  really coming in at an impressive
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  11.6%,
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  the same operating margin that reported the the
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  previous year.
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  So I think revenue for AdventHealth
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  grew by $3,000,000,000
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  year over year. Now a $23,000,000,000
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  system,
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  expenses rose by 16% year over year, but,
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  importantly,
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  revenue matched that expect but that that growth
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  also growing by 16% year over year. So
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  margins really holding steady there. I think AdventHealth
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  is no doubt done a
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  scaled up without that margin erosion, essentially,
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  growing fast in high growth markets, but also
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  controlling costs as well to protect its profitability.
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  And I think a few things
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  really tie into that. Net net patient revenue
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  increased by $3,000,000,000
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  year over year, suggesting Apple Health
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  higher volumes no doubt coming into the system,
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  improve payer mix and or potential rate increases
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  in some of its core markets. What I
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  think has really been honing in and expanding
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  in
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  higher margin,
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  higher acuity service lines, the likes of spine,
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  orthopedics,
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  GI, cardiology, all key here. And then just
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  just honing in on its on its home
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  state in Florida, it's had a ton of
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  growth here recently. We reported over the last
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  couple of years. It recently acquired a hospital
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  from community health systems,
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  in Florida. It's also building a new 80
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  bed hospital here. But one key part of
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  its growth is really building and expanding,
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  multiple markets with freestanding
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  emergency departments across Florida, across multiple markets, but
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  particularly in Florida. I believe it now has
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  27 freestanding emergency departments in Florida alone. Really
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  continues to expand in high growth, attractive markets
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  here. And the last just quick note on
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  this, I think,
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  see a lot more health systems kinda really
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  to really look to that freestanding emergency department
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  as a way to
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  essentially
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  plant a flag, I guess, for lack of
• 8:56
  a better term, in new markets or new
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  territories,
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  expanding out patient, and then building surrounding facilities
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  around that. I think the idea being, can
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  we get more of these patients, bring them
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  into the health system earlier in their care
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  journey through freestanding EDs, urgent care centers, outpatient
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  facilities, and then for that more complex high
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  acuity, high margin care, can we bring them
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  back into the inpatient setting,
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  as well? So fantastic
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  financial results by AdventHealth,
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  and just a ton of growth there really,
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  particularly in the Florida market.
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  Oh, fantastic. And AdventHealth has been one of
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  the great success stories over the last decade.
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  Really remarkable what they have accomplished. I know
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  they've got new great CEO leadership after Terry
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  Shaw, who led up for a long time,
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  was a fantastic leader,
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  fantastic leader, and just doing a wonderful, wonderful
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  job. Alan, I wanna thank you as always
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  for joining us on the Becker's Healthcare podcast.
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  You are not just, great in the podcast,
• 9:48
  but a fantastic leader in person. Thank you
• 9:51
  so much for joining us today. Always a
• 9:53
  pleasure. Talk so much, Scott. Really appreciate it.