What the CEOs of Dignity Health, CHI expect to achieve in $28B merger

Dignity Health SSI kit 2
Dignity Health and Catholic Health Initiatives are in the midst of negotiations to merge. Shown here, a Dignity Health project to provide pre-surgical kits to patients to reduce the chance of infection. (Courtesy of Dignity Health)

The proposed merger between Dignity Health and Catholic Health Initiatives (CHI) would allow both to better compete in nontraditional areas of health delivery and become a system of choice for national business brands, the CEOs of both health systems said in recent comments about the pending deal. 

Announced in December, the merger would create a $28 billion health system giant with more than 700 facilities across 28 states. The deal is expected to close by the end of the year.

Dignity Health System CEO and President Lloyd Dean said the combination of the two Catholic health systems would help his San Francisco-based system better address increasing demand for price transparency and the changing definitions of where healthcare can be delivered outside traditional settings, the San Francisco Business Times reported.

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RELATED: Dignity Health, CHI to merge and form new Catholic health system

They can also work on solutions for state-to-state disparities between healthcare markets, he told the Business Times.

Meanwhile, the head of Englewood, Colorado-based CHI recently told the Denver Business Journal that his goal is to make the new system a preferred provider for national business brands.

The most important elements of the future agreement will be the health system's expanded ability for acquisitions, its increased supply-chain negotiating power, investment in areas like precision medicine and increased focus on areas like telehealth and advanced outpatient care, CHI CEO Kevin Lofton told the Business Journal.

“If we do our jobs right, we won’t look like a hospital company. We still will have hospitals, but there will be fewer people in them,” Lofton told the Business Journal. 

RELATED: Kaufman Hall: Number of hospital mergers jumped 13% in 2017; M&A momentum shows no signs of slowing down

The new health system to be created between Dignity and CHI would be led by both Dean and Lofton and a single governing board with six members from each legacy board. It would be headquartered in Chicago under a new name to be chosen in the second half of 2018.

CHI operates 103 hospitals, including four academic health centers and major teaching hospitals as well as 30 critical-access facilities in 18 states. Dignity Health operates hospitals in Arizona, California and Nevada. Together, the systems earned $28.4 billion in revenue in 2017 and also had $38 billion in assets and gave $4.8 billion in charity care, community benefit and the unpaid cost of government programs.

It's yet another deal in growing number of consolidation deals in healthcare in recent years in what's been a so-called merger-mania. Kaufman Hall found the number of healthcare merger deals increased by 13% in 2017 compared to 2016 and expects the momentum to continue through this year. The value of healthcare deals also shot up in 2017, increasing by 145.8% compared to 2016, totaling $175.2 billion, according to a report from PwC's Deals Practice

However, experts recently warned members of Congress that there is little evidence that healthcare consolidation improves patient care or lowers healthcare costs, FierceHealthcare reported. While consolidation is driven by a number of factors such as enhanced reimbursement and increased scale, it erodes competition and tends to lead to increased costs, they said.

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