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Only a week after CVS Health Corp (NYSE:CVS) announced it had acquired health insurer Aetna, a number of faith based not-for-profit hospital operators are consolidating to form regional health giants to ward off competition. With the expansion of CVS Health and Optum, which intend to acquire dozens of doctor clinics, low cost health providers and health centers in the coming months, more hospital systems are expected to merge to protect their turf.

The trend is quickly changing the medical landscape in the country, which had a system of over 5000 community hospitals and academic medical centers. These are being replaced by regional giants which have acquired tens of hospitals and hundreds of outpatient clinics. For instance, the merger between California’s Dignity Health and Colorado’s Catholic Health Initiatives will control 139 hospitals and 700 sites of care. Another regional behemoth will be the proposed combination of Advocate Health Care from Chicago and Aurora Healthcare from Milwaukee, which will operate over 500 sites of care and 27 hospitals. According to Wall Street Journal, the merger between Ascension and Providence St. Joseph will create one of the largest nonprofit hospital systems, controlling over 197 hospitals across 27 states.

According to data from consulting firm Kaufman, there were more hospital mergers and acquisitions in 2017 than in the previous year. The Kaufmann tally shows that the big players in the health industries including UnitedHealth and CVS are looking at diversification to enhance their market share.

With the entrance of combined hospital systems, smaller healthcare operators will need to scale their operations to compete in the outpatient industry. Given the fact that health care giants like CVS and Optum have sufficient capital to acquire doctor practices, clinics and surgery centers, hospital operators need to enlarge their capital base.

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