Dignity Health, CHI finally strike deal to form second largest nonprofit system
- Catholic Health Initiatives (CHI) and Dignity Health have signed a definitive agreement to merge into a new nonprofit system.
- The news caps off a courtship period dating back to at least October 2016.
- The deal would create a system with $28.4 billion in combined revenue across 139 hospitals operating in 28 states. While the combined system will be the largest nonprofit system based on operating revenue, Ascension will continue to be the largest by strength through numbers with 141 hospitals.
Merger mania in the healthcare space kept up in December, a trend that's dominated the entire year.
The industry had speculated the merger between CHI and Dignity would materialize, but were unsure of timing. Last September, reports said the two were in the final discussion stages.
In a joint statement, Dignity and CHI said the key strategic and reinvestment priorities for the new system will include:
- The expansion of community-based care, offering access to services in a variety of outpatient and virtual care settings closer to home;
- Clinical programs focused on special populations and those suffering from chronic illnesses; and
- Advancement of digital technologies like stroke robots and Google Glass.
The new organization will be led jointly by Dignity Health CEO Lloyd Dean and CHI CEO Kevin Lofton. Lofton will oversee mission, advocacy, sponsorship and governance, system partnerships and IT. Dean will have authority for all of operations, including clinical, financial and human resources.
The two systems have worked together before on telehealth, micro-hospitals and precision medicine efforts. Last September, the companies collaborated to form the Precision Medicine Alliance to help diagnosis and treatment protocols using genetic information. Going forward, a precision oncology program is being implemented in three service areas, and four-to-six more service area launches are planned across the country in the next year.
Mergers and acquisitions among providers are expected to exceed 2016's numbers, reflecting an industry transformation as hospitals and health systems react to outward pressures such as new market entrants and investors enacting greater boardroom influence.
Merger mania overtook most of the Eastern Seaboard this year for providers, with large concentrations in Illinois, Pennsylvania and Georgia.
Providers are hoping to leverage power at the negotiating tables with payers and suppliers. However, as seen with Tenet and Community Health Systems, scalability does not always equal success. CHI-Dignity goes out of its way to highlight technology and outpatient efforts, both forward-thinking pursuits as admissions soften and payers push patients to low-acuity settings.
The deal is anticipated to close in the second half of 2018 and is subject to federal, state and church approvals.
As the organizations have no overlap across hospital service areas, Fitch Ratings stated it believes over time that the combined system could develop a strong national brand while performing well across revenue cycle, labor management, quality and IT use.
However, the credit rating agency also forecasted the transition years will likely require a significant amount of resources, adding to the investments already made during the long negotiation period.
"In Fitch's view, both Dignity Health (because of payor mix challenges) and CHI (because of recent financial losses) have relatively weak cash positions in relation to debt and cash flow generation," the agency said, adding, "We expect that the new system's margins and balance sheet will be stretched during the initial consolidation period."
- Healthcare Dive How hospital M&A has been driven by investors and industry evolution in 2017
- Modern Healthcare Dignity and CHI sign definitive agreement to merge
- Healthcare Dive Disruptor of the Year: Softening patient admissions
- Healthcare Dive The low-acuity arms race among health systems is on
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