OHSU to absorb struggling Legacy Health, form 10-hospital system

Two of Portland, Oregon’s leading healthcare providers announced plans Wednesday evening to merge and form a 10-hospital, $6.6 billion health system.

Oregon Health & Science University (OHSU) and Legacy Health said their boards have unanimously approved and signed a nonbinding letter of intent to merge.

The deal is expected to close next year pending regulatory approval and other customary closing conditions, per the announcement.

OHSU would become the merger’s surviving entity with Legacy becoming its subsidiary, according to the signed letter. All existing Legacy corporate entities would remain intact with the exception of its 50% interest in the PacificSource health plan, which will be transferred to a new independent foundation the systems plan to form with Legacy’s cash on hand.

Other financial terms were not disclosed, though the announcement highlighted a 10-year, roughly $1 billion commitment from OHSU toward improving the entity’s primary- and community-based services. That capital commitment would “mostly” be financed through bond offerings, according to the announcement.

Of note, the merger would be a financial lifeline for Legacy. The organization’s leadership has been blunt regarding the system’s ongoing “financial crisis” and, among other cost-reduction efforts, recently signed a deal selling off much of its laboratory business to Labcorp.

“OHSU has enjoyed a decades-long relationship with Legacy Health, united by a shared commitment to improving the health and well-being of people in Oregon and beyond,” Danny Jacobs, M.D., president of OHSU, said in a release. “Now, we have an opportunity to join together and take a decisive next step that will help deliver on our promise to ensure the best access and care for all who need us, today and in the future.”

Should the deal close, the combined system would become the Portland metro area’s largest employer with over 32,000 staff and more than 100 locations.

Much of the scale comes from OHSU. Partially funded by the state of Oregon, the nonprofit system employs nearly 20,000 people at its flagship OHSU Hospital, children’s hospital, two other medical centers and other clinics. It reported nearly $4 billion in revenue in its fiscal year ended June 30, 2022.

Legacy Health employs 14,000 people and hosts 1,626 licensed beds across six hospitals as well as over 70 clinics. During its disastrous 2023 fiscal year ended March 31, the system logged nearly $2.6 billion in total operating revenues but suffered a $171.7 million operating loss (-6.6% operating margin) and a $245.8 million net loss.

In an early July release titled “Securing Our Legacy: The Path to Financial Health,” system leadership said Legacy has been facing unsustainable losses since its 2020 fiscal year thanks to a combination of fewer patients, longer stays, higher labor costs, “unprecedented” inflation and limited reimbursement increases for the 70% of patients insured under government-sponsored plans. At the time, the leaders did not rule out a potential merger.

“While our reserve position is stable, we are still tapping into those funds to pay for operations and fund capital due to increased costs of wages, supplies and longer unreimbursed patient stays,” the system wrote in a July infographic detailing its financial position.

OHSU also logged a $89.7 million adjusted operating loss (-2.3% operating margin) and $176 million net loss in its most recently reported fiscal year, though it was up to $82 million of net operating income (2.4% operating margin) as of the nine-month mark of fiscal 2023.

In the merger announcement, Legacy said it would be directing any net cash on hand and net investment returns toward a new independent foundation that “will promote physical and mental well-being and address inequity in health care, including social determinants of health and behavioral health.”

“Our mission is to provide good health for our people, our patients, our communities and our world,” Kathryn Correia, president and CEO of Legacy, said in the announcement. “By combining with OHSU, we will expand our ability to deliver on our mission.”

The deal’s close is no guarantee as OHSU and Legacy currently operate in a shared market. Alongside federal regulators’ recent crusade against hospital mergers they deem to be a public harm, Oregon’s Health Care Market Oversight program for reviewing and attaching conditions to healthcare transactions is considered among the strictest state-level programs in the nation.