In a move that caught the health care industry by surprise, WellStar Health System has broken off talks to create a mega-merger with Emory Healthcare.
The merger discussions had gone on for months and were aimed at producing a giant hospital-based system – the biggest in Georgia and perhaps the Southeast.
Neither WellStar nor Emory gave a reason for the collapse of negotiations.
The potential deal would have married an academic medical center in Emory with a community hospital-based system in WellStar. Industry experts had said it would be a difficult fit because of the stark difference in the two health care cultures.
Marietta-based WellStar announced the end of the corporate courtship Tuesday.
“After a few months of discussion and review with Emory University, the WellStar Board of Trustees has determined a new strategic direction,” Gary Miller, chairman of WellStar Board of Trustees, said in a statement.
“WellStar has declined to enter the next stage of discussions with Emory University. We respect Emory University as a leading international academic medical center.” He added that WellStar will accelerate “integration opportunities with other potential partners.”
WellStar declined further comment. Emory, meanwhile, issued a statement Tuesday that expressed disappointment at the outcome.
“Emory University regrets that WellStar Health System has decided to discontinue our discussions and planning with them to create a new, unified health system,’’ the statement said.
“Emory continues to believe that the proposed combination of Emory Healthcare and WellStar Health System would serve our communities well as a way to extend the benefits of our renowned academic medical center to a larger population of patients in metro Atlanta, as well as the state of Georgia and beyond,” the statement said.
In April, WellStar and Emory entered the second phase of their merger talks, which they said would resolve issues such as the name of the new health system, its corporate office location, governance and structure.
Such pre-merger breakups can be caused by any of several factors. These include disagreements about who’s going to run the merged organization, differences in vision, a surprise in the financial disclosures, or even a clash of egos.
Eb LeMaster, a mergers and acquisitions specialist with Ponder & Co., said the issue of who’s going to be in control after a merger can be especially a problem when one entity is not clearly assimilating the other.
“Control and governance and where capital will be spent over time’’ can be difficult to determine in such a “merger of equals,’’ he added.
Industry experts Tuesday focused on the cultural differences between Emory and WellStar.
Dave Smith of Kearny Street Consulting said he was mildly surprised by the merger collapse. But he added, “It was a bigger surprise that they were merging. The cultures were so different.”
An academic medical center has a research and health professional education mission, as well as delivering care, while a community hospital system focuses primarily on the medical care side, said Chris Press, a consultant with Morgan Healthcare Consulting. Merging those two cultures, Press said, “is a higher hurdle.”
Despite the breakup, consolidation among hospital systems is not expected to slow down any time soon.
WellStar, in fact, signed a letter of intent in May to add West Georgia Health in LaGrange to its fold. West Georgia Medical Center would become the sixth hospital in the nonprofit WellStar system, and the first one that’s not in Atlanta’s suburbs.
The number of hospital mergers or acquisitions nationally has doubled since 2009.
Mergers, and looser alliances of hospitals, have accelerated due to the shifting economic environment in the health care industry, which is partly due to the Affordable Care Act. Hospitals are under pressure to adjust to new payment models, created by insurers and the federal Medicare program, that emphasize cost control and improved quality of care.
The Emory/WellStar breakup may kick off new configurations of local hospital systems.
Smith of Kearny Street Consulting said WellStar may decide to look at other local targets, such as Tenet Healthcare’s hospitals. Tenet’s Georgia hospitals, including North Fulton Hospital and Atlanta Medical Center, are on the market.
WellStar currently operates a health insurance entity with Piedmont Healthcare, another large metro Atlanta system.
“Emory will just go on,” Smith added. No hospital system can stand still nowadays, he said.
WellStar also announced Tuesday that Candice Saunders will assume the duties of president and CEO effective July 1. Reynold Jennings, the current CEO, will be named chief strategy officer, WellStar said.