Catholic Health Initiatives, the parent organization associated with CHI St. Alexius Health, has signed an agreement with Dignity Health to combine into a new Catholic health system.
Englewood, Colo.-based CHI and San Francisco-based Dignity have been in talks for a year. Dignity Health’s Board of Directors and Sponsorship Council and CHI’s Board of Stewardship Trustees have approved the combination. The deal, subject to federal, state and church approvals, is anticipated to close in the second half of 2018.
“We are excited about what this means for Catholic Health Initiatives as an organization and the opportunities it will bring to CHI St. Alexius Health," said CHI St. Alexius Health President Kurt Schley. "This new organization will be grounded in the Catholic values, which are a foundation to our healing ministry."
Schley said some of the benefits of the merger, should it be finalized, would include sharing of best practices and advancement of research.
“The new organization will have the size and ability to scale best-in-class clinical service lines, recruit and retain top talent, standardize operations to improve quality and reduce cost of care and advocate more effectively for all people,” Schley added.
The joint organizations would have a 28-state footprint, including North Dakota, with 700 care sites and 139 hospitals nationwide, about 159,000 employees and more than 25,000 physicians and clinicians.
A merger between the two companies would create the nation's largest not-for-profit hospital chain, with combined annual revenue of $28.4 billion.
"We foresee an incredible opportunity to expand each organization's best practices to respond to the evolving health care environment and deliver high-quality, cost-effective care,” Lloyd Dean, president and CEO of Dignity Health, said in a statement.
The new organization plans to establish its corporate headquarters in Chicago and operate under a new name to be chosen in the second half of 2018. Local facilities will continue operating under their current names.
In September 2016, the two systems formed Precision Medicine Alliance LLC community-based precision medicine program, including precision oncology and plans for four to six more service area launches in the next 12 months. The objective is to be available at nearly 150 CHI and Dignity Health and care centers across the U.S.
The potential merger comes as CHI continues to be dogged by financial issues.
In March, the major ratings agencies, including S&P, dropped CHI's rating to BBB-plus from A-minus. S&P did upgrade CHI from a negative outlook to stable outlook, meaning no further downgrades were looming.
“While management's current turnaround plan has created an expectation for stabilization and modest improvement over the next 18 months, it is our opinion that it will take several years on the current financial improvement trajectory for CHI to return to a higher rating,” said S&P credit analyst Martin Arrick in the downgrade report.
“We expect a strengthening of our financial performance — and a strengthening of our credit profile,” CHI said when the ratings were released as operating losses shrunk from $75.6 million in the second quarter compared with $93.7 million a year earlier.
Since then the hospital system has continued to cut its operating losses in half, with an operating loss before restructuring for the first quarter of fiscal year 2018 of approximately $64 million, compared to more than $137 million and in the same period last year. The organization also enjoyed excess of revenue over expenses of $136 million in the first quarter.
CHI's debt is relatively high for its size at $8.6 billion in June. Dignity's debt is lower at $5.25 billion in March, though it pays $408 million annually in interest on that debt.
The story has been changed to reflect the entities correct combined revenue.