TrustWorks On Call: Merging Like It’s 2023

Behind the Headlines

Unpacking the forces driving healthcare's biggest stories.

1. Allina Health intends to join Sutter Health.

Last Tuesday, Sacramento, CA-based Sutter Health and Minneapolis, MN-based Allina Health announced they signed a Letter of Intent to form a combined $26B not-for-profit system with 39 hospitals operating in Northern and Central California, Minnesota, and Wisconsin.
Under the deal, which the systems hope to close by the end of 2026 pending regulatory approval, Allina Health would become the Upper Midwest Division of Sutter Health and receive a $2B investment from Sutter, while retaining its original branding and headquarters.
The systems believe their complementary strengths—Sutter’s connection to “AI and platform development” in Northern California and Allina’s relationship with Minnesota’s “med-tech and engineering” hub—will position the combined system as “a national leader in digital and technological advancements.”

TrustWorks Take: Sutter has been publicly broadcasting its desire to access markets outside of California, so this deal does not come entirely out of the blue. Due to strict regulatory and labor protections producing high facility costs, California is perhaps the most expensive state for operating a healthcare business. On top of that, Sutter has settled on multiple class-action antitrust lawsuits totaling over $800M in recent years. Meanwhile, Allina has lost money on operations the last two years but is the market-share leader in the greater Minneapolis area. So, despite the press release speaking to tech synergies, this deal is more about geography and economics. Sutter has the capital Allina needs to do margin improvement, and Allina is well positioned in a market that allows Sutter to grow outside of California’s regulatory and cost structures.

However, this announcement still comes as a surprise because large cross-market hospital mergers, such as this one, already had their moment in the sun. In the wake of COVID’s disruptions, and wary of heightened antitrust scrutiny around mergers with overlapping service areas, systems interested in M&A began looking further afield, resulting in the combinations like Intermountain-SCL Health and Advocate Aurora-Atrium. The problem with these cross-market mergers is how difficult is it to translate their theoretical benefits, ranging from back-office efficiencies to intellectual economies of scale for best practices, into meaningful results for their patients and providers. Indeed, initial research suggests that cross-market hospital mergers are associated with price increases without quality improvements. Recently combined systems may just need more time to complete the difficult work of integration, but if the public benefit of cross-market mergers continues to remain in doubt, they may fall under the same umbrella of scrutiny as other vehicles for provider consolidation.

2. Providence looks to divest its health plan.

Providence, a Renton, WA-based not-for-profit system with 51 hospitals, announced last Thursday that it was “actively exploring” the sale of its Providence Health Plan (PHP), among other strategic options.
PHP’s membership dropped from about 700K at the end of 2024 to 440K in January of this year, after the health plan switched Providence employees to an Aetna-administered plan, saw its Medicare Advantage (MA) star rating decline to 3.5, and posted a $102M net loss in 2025.
Providence has been undertaking a multiyear financial turnaround, rising from a -8.8 percent operating margin in 2022 to a -2.1 percent margin in 2024, before finally achieving a positive margin in Q3 2025.

TrustWorks Take: A decade ago, provider-sponsored health plans (PSHPs) felt like they were having a moment, as health systems sought to diversify revenue by taking on risk and tap into the booming MA market, which was highly profitable for health plans. By 2022, 31 percent of health systems offered a PSHP, and Providence was a leading example among them, highlighted for its direct-to-employer deal with Intel. However, PSHPs have recently struggled alongside other regional insurers, dealing with the same higher utilization and reduced MA margins as national insurers but without the cushion of scale. While many insurers are looking to reset by scaling back their offerings, Providence hopes to cut its losses altogether.

Providence is only the latest system to explore offloading its PSHP, and no one is talking about launching new PSHPs. They are expensive to start, difficult to grow, and naturally capped by the health system’s service area. Traditional insurers face no such restraints and have reached higher tiers of scale, giving them a larger risk pool and better access to technology to predict utilization and manage spending. (For context, when PHP’s total enrollment peaked at 700K in 2024, UnitedHealthcare had 9.4M enrollees in MA alone). Some mature PSHPs may continue to succeed thanks to operational efficiencies and good markets, but the fact that 31 percent of health systems had health plans in 2022 is now looking like a high-water mark as PSHPs recede to be more of a niche product.

3. Judge restores previous childhood vaccine schedule.

Last week, a Massachusetts district court judge temporarily blocked several changes to federal vaccine policy from taking effect, restoring for now the childhood vaccine schedule from before Robert F. Kennedy Jr. became Secretary of Health and Human Services (HHS).
Last July, six medical associations, including the American Academy of Pediatrics (AAP), sued to stop Secretary Kennedy’s decision to no longer recommend COVID vaccines to children and pregnant women; they have since tacked on more complaints, such as Secretary Kennedy firing and replacing every member of the Advisory Committee for Immunization Practices (ACIP).
Judge Murphy ruled that the plaintiffs were likely to show that Kennedy had violated the Administrative Procedures Act by improperly reconstituting ACIP and by issuing a new childhood vaccine schedule without consulting ACIP.

TrustWorks Take: This ruling is only a temporary stay while the Massachusetts district court decides the case and determines an appropriate remedy. Since the Trump administration is almost certain to appeal, the Supreme Court will have the option to decide the fate of Secretary Kennedy’s vaccine policies. So, while public health advocates celebrate their wins when they get them, this district court ruling should not be taken as a return to the status quo for vaccines. Instead, it introduces even more uncertainty. State and local governments and payers have already lost their single source of truth for vaccine recommendations. Even if HHS restores the original childhood vaccine schedule, they may keep looking elsewhere for their vaccine schedules and coverage decisions. The damage to institutional credibility has already been done, and there is likely nothing a judicial order can do to fix that.

Beyond the Whiteboard

Visualizing key trends from the healthcare industry

Payers and PBMs are One in the Same
For years, much of the consternation around the vertical integration strategies of payers has focused on their moves in the provider space: CVS Health buying Oak Street Health, Humana buying Kindred at Home, and UnitedHealth Group (UHG) buying enough physician groups to be affiliated with at least 90K, or 10 percent of all US physicians. UHG’s care delivery ambitions are serious, but looking at the 2025 audited financial results for four of the largest publicly traded payers shows the real story of vertical integration does not run through providers. Humana, Cigna, CVS, and UHG all earn more revenue from their pharmacy than their provider businesses; Cigna and CVS even earn more from pharmacy than their insurance businesses. It is no coincidence that these four companies also operate the four largest pharmacy benefit managers (PBMs), controlling 87 percent of the market between them. PBMs are often accused of lacking transparency, and one reason for that is that the health insurers they contract with to manage drug benefits and split the manufacturers’ rebates with are often under the same parent company. Congress recently enacted some PBM reforms intended to reorient the PBM business model away from their worst practices, but as long as a conflict of interest exists between payers and PBMs, there will be a danger of savings intended for patients instead being retained by vertically integrated middlemen.

Dialing In

Sharing insights from our work with clients

What Still Holds APPs Back?
Health system C-suites and boards have received the memo by now that Advanced Practice Providers (APPs) are essential to care delivery, a necessary answer to the physician shortage question, and a key lever for efficiency. But as I saw recently with a system in need of a physician compensation overhaul, when you look under the hood, you see this rhetoric around APPs may not live up to reality. Despite the system’s nominal strategy, its individual practice centers varied greatly in how they used their APPs, meaning the preferences of individual supervising physicians informally overrode official system policies. Some centers had their APPs operating at top of license, but too many were wasting away potential productivity by treating them as mere assistants to the physicians.

My diagnosis for systems like this is insufficient commitment to an organization-wide care model. A care model is systemic and exhaustive, not subject to the variances of individual preferences. In modern care models, all APPs work at top of license in collaboration with physicians to manage combined panels. They should also be billing for full reimbursement where insurance allows, although insurance restrictions can be a real constraint on revenue (e.g. if only 85 percent reimbursement is allowed) and a meaningful barrier to full APP adoption. APP compensation should also be modeled after physician compensation, with performance-based incentives, not just salary. Finally, they should enjoy all the same technology, with AI serving as a perfect extender for their top-of-license care. In today’s market where physicians are growing scarce, APPs can not only help meet market demand, but also could, with right reimbursement structures, alter underlying economics. In my experience, APPs rarely fail in practice, but are often failed by inadequate design. If their role is not codified it as part of the care model, it becomes a variable physician preference masquerading as strategy.

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Merging Like It's 2023