California DOJ approves CHI-Dignity merger, with conditions

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The California Department of Justice conditionally approved the proposed merger of Englewood, Colo.-based Catholic Health Initiatives and San Francisco-based Dignity Health on Nov. 21.

Here are five things to know:

1. Under the California Justice Department’s conditions, the combined system, called CommonSpirit Health, is required to maintain emergency services and women’s healthcare services for 10 years.

2. To make any changes to emergency or women’s healthcare services during years six through 10, CommonSpirit will be required to notify the Justice Department to determine how the changes will affect the community.

3. CommonSpirit is also required to allocate $20 million over six fiscal years to create and implement a Homeless Health Initiative to support services for patients experiencing homelessness.

4. Starting in 2019, CommonSpirit’s California hospitals are required to alter their financial assistance policies to offer a 100 percent discount to patients earning up to 250 percent of the federal poverty level.

5. CHI and Dignity signed a definitive agreement to merge in December 2017, and the organizations expect to complete the transaction by the end of this year. The new $28.4 billion health system will include more than 700 care sites and 139 hospitals.



CHI, Dignity unveil name for combined system

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CHI CEO Kevin Lofton, left, and Dignity CEO Lloyd Dean

Englewood, Colo.-based Catholic Health Initiatives and San Francisco-based Dignity Health have picked a name for the combined system their proposed mega-merger will create: CommonSpirit Health.

“CommonSpirit Health was chosen because of its strong association with the two systems’ missions of service and positive resonance with the diversity of people served,” the systems said in a joint press release. “It evokes the strategic vision and aspiration of the new ministry to advance health for all and make a positive change for the people and communities served; a belief that all people deserve access to high-quality health and healthcare; and a passion to serve those who are sick and injured, including those who are most vulnerable.”

The systems evaluated more than 1,200 names before landing on CommonSpirit Health.

CHI and Dignity signed a definitive agreement to merge in December 2017, and the organizations expect to complete the transaction by the end of this year. The new $28.4 billion health system will include more than 700 care sites and 139 hospitals.


When Hospitals Merge to Save Money, Patients Often Pay More

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CHI’s operating loss widens in Q3, but finances improve over longer term

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Englewood, Colo.-based Catholic Health Initiatives saw its operating loss widen in the third quarter of fiscal year 2018, but the health system’s financial picture improved over the first nine months of the fiscal year.

CHI’s operating revenues declined from $3.8 billion in the third quarter of fiscal year 2017 to $3.7 billion in the third quarter of fiscal 2018. However, the health system’s expenses before restructuring also declined about 1.7 percent year over year to $3.7 billion in the third quarter of the current fiscal year.

After factoring in restructuring, impairment and other one-time costs, the system ended the third quarter of fiscal year 2018 with an operating loss of $35.3 million, compared to an operating loss of $17.2 million in the same period a year earlier. CHI said its operating EBIDA improved by nearly $80 million during the third quarter of fiscal year 2018 after adjusting for transactional gains and other items.

CHI launched a turnaround plan about three years ago, and the improvements the system has achieved under that plan are clear when looking at financial results for the first nine months of the current fiscal year. For the nine months ended March 31, CHI reported an operating loss of $114.7 million, which was a significant improvement from the nearly $344 million loss the system recorded in the same period of the year prior.

“We continue to see strong momentum that has played out in the current fiscal year,” said Dean Swindle, president of enterprise business lines and CFO of CHI, in an earnings release. “We have established a strong foundation through a performance-improvement plan stretching back nearly three years, and we expect that these positive results will continue throughout the rest of this fiscal year and well beyond as we become a truly high-performing health system.”

The three major rating agencies — Moody’s Investors Service, Fitch Ratings and S&P Global Ratings — have all recognized CHI’s progress in recent months with positive adjustment in their outlooks for the health system.



California Unions Secure 12% Raises from Kaiser Permanente, Dignity Health

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Under the terms of separate, five-year contracts, about 34,000 workers in the state expect their wages to rise at least 12%, with lump sum payments added thereafter.

Two labor unions in California announced Monday that they have reached separate contract deals with major providers in the state.

Oakland-based Kaiser Permanente, which operates 21 medical centers and other facilities in central and northern California, agreed to a 12% across-the-board wage increasefor the 19,000 registered nurses and nurse practitioners it employs, according to the California Nurses Association (CNA).

San Francisco-based Dignity Health, which operates throughout California, agreed to a 13% wage increase over five years for the 15,000 union members it employs as healthcare workers, according to SEIU-United Healthcare Workers (UHW) West.

The five-year deal with Kaiser Permanente is pending ratification by CNA members, while SEIU-UHW members already ratified their five-year deal with Dignity Health.

“Our new contract maintains employer-paid family healthcare and provides rising wages, and that security and peace of mind enables us to focus on caring for our patients,” Dennis Anderson, a laboratory assistant who works for Dignity at Mercy Hospital in Folsom, California, said in a statement.

The deal details: Kaiser Permanente

The tentative agreement with Kaiser Permanente will ultimately benefit patients, according to CNA Executive Director Bonnie Castillo.

“Protecting the economic security of our future RNs is essential to defending the health of everyone who will be a patient today and tomorrow,” Castillo said in a statement. “This agreement gives us a strong foundation for health security for Kaiser nurses and patients for the next five years in a turbulent time of health care in our state and nation.”

Key provisions of the contract, according to CNA, include the following:

  • Additional staffing: Kaiser will add 150 RN full-time-equivalents to assist in its migration to a new computer system, with 106 of those positions to be posted within 90 days of the contract’s ratification.
  • One wage scale: Kaiser agreed to withdraw a proposed four-tier wage scale for RN/NP new hires—a proposal the union said would otherwise “promote workplace divisions between current nurses and new RN graduates.”
  • Wage increases: The agreement calls for 12% wage increases for all RNs and NPs, with a 3% lump sum over five years.

The agreement also calls for 600 formerly non-union RN patient care coordinators to be included in the contract with the other RNs and NPs employed by Kaiser.

A spokesperson for Kaiser Permanente could not be immediately reached Tuesday for comment.

The deal details: Dignity Health

The ratified agreement between SEIU-UHW and Dignity Health—which lasts through April 30, 2023—includes the following key provisions, according to the union:

  • Benefits: Union members employed by Dignity will keep their fully paid, employer-provided family healthcare.
  • Wage increases: Workers secured 13% raises over five years, with a 1% bonus in the second year.
  • Funding for training: Dignity also agreed to contribute another $500,000 annually to a joint labor-management training program designed to keep workers on top of the latest changes in healthcare, the union said.

This deal comes as Dignity Health prepares to merge with Catholic Health Initiatives, based in Chicago, which would form one of the largest nonprofits in the country.

A spokesperson for Dignity Health could not be immediately reached Tuesday for comment.

We’re on the brink of a health care M&A binge

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CVS Health is extremely close to cementing its $66 billion takeover of Aetna, the Wall Street Journal reported yesterday. It’d be the biggest deal of the year, and Axios’ Bob Herman notes that more health care deals could also be in the offing:

  • Humana recently altered its executive compensation and severance policies in case the health insurer is bought out or merges with another company. Wall Street views Humana as a ripe acquisition target for Cigna because of Humana’s huge Medicare business.
  • Express Scripts is about to lose its large, lucrative pharmacy benefits contract with Anthem. Express Scripts’ CEO said at a Forbes health care conference yesterday he “would be open” to striking a merger deal with a health insurer or partnering with Amazon.
  • Catholic Health Initiatives and Dignity Health, two large hospital systems, likely will provide more details into their merger discussions when they chat with bondholders next week.

Get smart: Health care mergers and acquisitions have been in vogue for years, and big deals would be almost certain to happen if Congress also passes its tax cut bill — which would give companies more money to play with through vastly lower corporate tax rates.

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CHI sees operating loss narrow to $77.9M, says merger with Dignity still in the works

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Englewood, Colo.-based Catholic Health Initiatives’ revenue growth was restrained in the first quarter of fiscal year 2018 due to Hurricane Harvey, and the system ended the period with an operating loss. However, like many systems, it benefited from higher investment income.

CHI’s operating revenues remained virtually flat year over year at $3.7 billion, according to recently released unaudited financial documents. CHI said its operating results for the first quarter of fiscal year 2018, which ended Sept. 30, were negatively impacted by Hurricane Harvey, which caused the temporary evacuation and closure of two of its facilities in Texas in late August. Due to a volume shortfall caused by the hurricane, CHI’s Texas region took a $25.8 million hit.

After factoring in expenses and one-time charges, CHI ended the first quarter of fiscal year 2018 with an operating loss of $77.9 million, compared to an operating loss of $180.7 million in the same period of the year prior.

Fueled by an increase in investment gains, CHI recorded a net surplus of $135.3 million in the three months ended Sept. 30, compared to a net surplus of $36.6 million in the same period a year earlier.

Dean Swindle, CHI’s president for enterprise business lines and CFO, said the system continues to make progress in efforts to turn around its finances. “We did not expect an organizational turnaround to be quick or easy — but we have made substantial progress in recent months and expect that trend to accelerate throughout this fiscal year,” he said. “We’ve taken all the necessary steps in our transformation to a higher-performing organization — and we certainly expect the numbers to reinforce that as we move through the 2018 fiscal year.”

CHI has been pursuing a merger with San Francisco-based Dignity Health since October 2016, and CHI said the two organizations are in the final stages of the due diligence process. On an earnings call in October, Dignity Health Senior Executive Vice President and CFO Daniel Morissette said the complexities of the deal are compounded by headwinds expected in the healthcare industry and the cultural components involved in marrying two large health systems.

CHI has operations in 17 states and includes 100 hospitals. Dignity Health has 39 hospitals and operates in California, Arizona and Nevada.