Kaiser Permanente to Acquire Geisinger

Kaiser Permanente, a large California-based health care group with 39 hospitals and 24,000 doctors, said on Wednesday that it expected to acquire Geisinger Health, a smaller East Coast group, in an effort to develop a new company that would operate nonprofit community health systems.

“If we can take much of what is in our value-based care platform and extend that to these leading community health systems, then we extend our mission,” Greg A. Adams, Kaiser’s chairman and chief executive, said in an interview. “We reach more people, we drive greater affordability for health care in this country.” Both organizations are nonprofit.

Kaiser will not absorb Geisinger, which will keep its name. Instead, Geisinger, which is headquartered in Danville, Pa., will be folded into Risant Health, a new nonprofit group that will operate independently. Geisinger’s chief executive, Dr. Jaewon Ryu, will serve as Risant’s chief executive when the deal is closed.

What’s Next: Regulatory Review

Federal and state regulators must approve the deal. While Mr. Adams did not say what other health systems he might be talking to regarding acquisitions, Kaiser said it hoped to invest $5 billion in Risant over the next five years, in addition to its spending on Kaiser’s core operations. The company expects to add five or six health systems to Risant in that time.

Why It Matters: Increasing Consolidation

Kaiser, which serves 13 million people in eight states and the District of Columbia, has built a reputation for delivering high-quality care at low costs. The organization operates like a health maintenance organization, in which it is paid a fixed sum to care for someone through a closed network of hospitals and doctors. But it has not succeeded in offering its model broadly across the country.

The creation of Risant Health represents an opportunity for Kaiser, which had $95 billion in revenue last year, to become an even bigger and more influential organization by working with other hospital groups and health plans.

The formation of the company is also a response to the rapid changes taking place in the health care industry. Large for-profit companies like health insurers, pharmacy chains and other corporations are scooping up physician practices and urgent care centers and devouring more of the country’s health care dollars.

In keeping with Kaiser’s model, the community health systems under Risant would invest in technology and preventive care to keep patients healthy, so they would need less expensive specialty and hospital care, Mr. Adams said.

As national systems and new players grow larger, “they are pulling away in some respects from our communities and from our community health systems,” he said.

The new venture “is a way to really ensure that not-for-profit, value-based community health is not only alive but is thriving in this country,” Mr. Adams added.

Background: A Tough Environment

As hospital groups emerge from the pandemic, many are struggling with higher expenses for supplies and labor. Both Kaiser and Geisinger reported operating losses in 2022.

“Covid has really shown not having integrated, value-based relationships puts our health systems and our communities at risk,” Mr. Adams said.

While Geisinger has long focused on improving care, Dr. Ryu said the health system would benefit from Kaiser’s ability to invest in the kind of technology and preventive care necessary to keep people healthier. “This model made sense to us as a way to accelerate and further bolster those capabilities and bring better health into our communities,” he said.

Because it has specialized in providing care under arrangements where it is paid a fixed amount, Kaiser has become one of the largest insurers in the profitable Medicare Advantage market, where its private plans are sold as an alternative to traditional Medicare.

But Kaiser has not been immune to criticism for overbilling the federal government, and some people say its financial model means it can be slow to refer patients for costly services. Kaiser has defended its billing practices and says its doctors work with patients to provide the most appropriate care.

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