The 4 Biggest New Areas to Focus on in 2019

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If you ignore the Sword of Damocles hanging over the industry in the form of a Texas federal judge’s ruling the entire ACA unconstitutional, 2019 could shape up as a relatively chaos-free year with little chance of legislative or regulatory upheaval. Despite the fact that the number one issue on voters’ minds during the 2018 election was healthcare, it’s unlikely that the extremely divided Congress will be able to address it in any meaningful way. Cue the 2020 election.

The biggest issues healthcare industry leaders foresee include:

1. Addressing social drivers of health 

Although it’s become clear that a person’s zip code has more impact on their health than their DNA, dealing with the social determinants (or social drivers) of health that relate to where a person lives are often far outside of the scope of most health plans’ operations. That’s rapidly changing. Whether it’s food or housing insecurity, economic stability, social or environmental safety or literacy, the impacts these social drivers have on health outcomes and costs are significant. Spurred by state Medicaid agencies and CMS, finding and deploying tools to measure and address the underlying issues that drive much of the cost and utilization in healthcare will be a focus during the year.

2. Provider consolidation 

As hospital systems extend their reach with acquisitions, mergers and alliances (for example the $28 billion Catholic Health Initiatives and Dignity Health merger), health plans will be faced with much less leverage in rate negotiation and greater challenges in establishing competitive product differentiation as providers will have more power to dictate terms for products and rates. On the other hand, plans aligned with providers will face a more favorable environment and may see significant growth over their unaligned competition.

3. Medicaid work requirements 

Adding work requirements for “able-bodied adults” to Medicaid expansion waivers has allowed Republican states that opted out of this ACA option (and the significant federal dollars that go with it) to find a way to participate that aligns with their stated conservative values.

Unfortunately, work requirements are much easier to put in place than to administer as some of the early-implementing states like Arkansas are finding out. Expect more non-expansion states to use this mechanism to expand their Medicaid coverage and for the health plans involved to be inundated with a whole new set of administrative requirements and challenging enrollment issues.

4. Personal healthcare technologies 

The Dick Tracy watches are here and are way more than cool communication devices. Measuring pulse and blood sugar, breathing rate, simple ECGs, and providing emergency alerts for falls are only the beginning of what appears to be a host of clinical monitoring and alerts coming from these personal technologies. Whether and how health plans address and incorporate the application of these new capabilities to their membership will make a significant difference in the MCO’s market presence and competitive stance.

While these were a some of the more frequently mentioned challenges, obviously other issues resonated a higher level for some execs based on their geography and product lines. Here’s hoping that 2019 sees the industry better serve the diverse healthcare needs of the country by meeting consumers’ demands for quality, affordability, and access.





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The newly merged, $29 billion system will have a footprint in 21 states, with more than 700 care sites and 142 hospitals, and an extensive social services and population health network.


CHI CEO Kevin E. Lofton and Dignity Health President and CEO Lloyd H. Dean ‘are each a CEO in the Office of the CEO’ for the new health system, which will be based in Chicago.

CommonSpirit Health pledges to focus on underserved communities, population health, and social determinants of health.

Dignity Health and Catholic Health Initiatives on Friday finalized the megamerger of the two Catholic health systems that will now be known as CommonSpirit Health.

The newly merged, $29 billion system will have a footprint in 21 states, with more than 700 care sites and 142 hospitals, along with research programs, virtual care services, home health programs, and population health initiatives to tackle the root causes of poor health.

CHI CEO Kevin E. Lofton and Dignity Health President and CEO Lloyd H. Dean are “each a CEO in the Office of the CEO” for the new health system, which will be based in Chicago.

“We didn’t combine our ministries to get bigger, we came together to provide better care for more people,” Dean said in a media release.

“We created CommonSpirit Health because in order to solve national health challenges, we need the breadth, scope, and resources to make a nationwide impact,” Dean said.

Lofton said CommonSpirit Health “will bring the expertise of a national health system to neighborhoods across the country.”

“Whether it’s a neurological institute in Arizona, a 25-bed critical access facility in North Dakota, a mobile lung cancer screening program in Tennessee, or a ‘hospital at home’ in Nebraska, CommonSpirit Health will expand the best approaches from across our new organization,” Lofton said. “Our whole will be much greater than the sum of our parts.”

The new health system has 150,000 employees and 25,000 physicians and advanced practice clinicians.

Dean noted that 27 million Americans remain uninsured, and life expectancy continues to fall, despite some progress made under the Affordable Care Act. He said CommonSpirit will focus on underserved populations and the social causes of poor health.

“Too many people still can’t access quality healthcare in their communities,” Dean says. “America’s healthcare system need big changes, and we have a big goal of improving the health of millions of people in this country.”

Lofton said CommonSpirit “will focus on treating the whole person, particularly the social causes of poor health that lead to needless suffering, unnecessary hospital visits, and premature deaths.”

“Our goal is to be the leader in every type of care, whether you need brain surgery, urgent care for the flu, or help managing your diabetes,” he said.

CHI and Dignity Health previously announced that the new ministry will retain the names of local facilities and services in the communities where they are located.


Brad Haller, director in West Monroe Partners’ Mergers & Acquisitions practice, notes that “so far, the new entity has shown very little change to how they will actually deliver care.”

“While the organization has a name for the merged entity, CommonSpirit, both systems indicated they are going to continue operating under both the CHI and Dignity names in their local markets,” he says.

“The merger wasn’t about branding or changing the nature of its business, but rather gaining economies of scale and geographic footprint, which makes sense for the like-mindedness in the way they deliver care and manage operations,” he says.

Concerns had been raised during the merger talks that women’s healthcare services would be ill-affected under the consolidated health system. Haller says those concerns appear to have been addressed with California approved the merger with a stipulation that CommonSpirit “must maintain emergency services and women’s healthcare services for 10 years after the deal closes.

“(California) also required CommonSpirit to create a Homeless Health Initiative to support hospitalized homeless patients,” Haller says. “I would suspect that the newly merged organization will find more synergies in care delivery as time goes on, as most merged organizations find during the post-integration phase, but in the spirit of efficiency or expansion.”

“The merger wasn’t about branding or changing the nature of its business, but rather gaining economies of scale and geographic footprint, which makes sense for the like-mindedness in the way they deliver care and manage operations.”

—Brad Haller

Allan Baumgarten, a veteran observer of the hospital sector in Midwestern states, says several Dignity hospitals are considered “non-Catholic” and not subject to the Vatican guidelines, such as not performing tubal ligations.

“Those hospitals will be kept somewhat separate so they can continue to offer those services,” he says.

Baumgarten notes the odd choice of Chicago as a headquarters for CommonSpirit, “even though neither system has a presence there.”

“CHI has three small hospitals in Minnesota (Park Rapids, Breckenridge, LIttle Falls) and some nursing homes, but otherwise the combined system has only a small presence in the Midwest,” he says.

“Not sure what to say about the impact on care delivery,” Baumgarten says. “In theory, if one system has certain strengths, like better care management and discharge planning, thereby reducing the number of readmissions, it could share those strengths and practices with the other hospitals.”

“To gain efficiencies, you might see them agreeing on a single vendor for certain medical devices or commodity suppliers that all hospitals will have to use in the future,” he says. “In any of these mergers, health economists will tell you that most of the benefits could be achieved by contracts and strategic partnerships.”

CHI and Dignity announced their plans to merge in December 2017. The deal was expected to close at the end of 2018, but it was delayed for one month. No specific reason was given for the delay.

The name CommonSpirit Health was chosen in November from among more than 1,200 possible names. The health systems said they settled on that name because it represents a shared sense of missional service and because it resonates with the diverse populations being served, the organizations said.




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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The Disappearing Doctor: How Mega-Mergers Are Changing the Business of Medical Care

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Is the doctor in?

In this new medical age of urgent care centers and retail clinics, that’s not a simple question. Nor does it have a simple answer, as primary care doctors become increasingly scarce.

“You call the doctor’s office to book an appointment,” said Matt Feit, a 45-year-old screenwriter in Los Angeles who visited an urgent care center eight times last year. “They’re only open Monday through Friday from these hours to those hours, and, generally, they’re not the hours I’m free or I have to take time off from my job.

“I can go just about anytime to urgent care,” he continued, “and my co-pay is exactly the same as if I went to my primary doctor.”

That’s one reason big players like CVS Health, the drugstore chain, and most recently Walmart, the giant retailer, are eyeing deals with Aetna and Humana, respectively, to use their stores to deliver medical care.

People are flocking to retail clinics and urgent care centers in strip malls or shopping centers, where simple health needs can usually be tended to by health professionals like nurse practitioners or physician assistants much more cheaply than in a doctor’s office. Some 12,000 are already scattered across the country, according to Merchant Medicine, a consulting firm.

On the other side, office visits to primary care doctors declined 18 percent from 2012 to 2016, even as visits to specialists increased, insurance data analyzed by the Health Care Cost Institute shows.

There’s little doubt that the front line of medicine — the traditional family or primary care doctor — has been under siege for years. Long hours and low pay have transformed pediatric or family practices into unattractive options for many aspiring physicians.

And the relationship between patients and doctors has radically changed. Apart from true emergency situations, patients’ expectations now reflect the larger 24/7 insta-culture of wanting everything now. When Dr. Carl Olden began watching patients turn to urgent care centers opening around him in Yakima, Wash., he and his partners decided to fight back.

They set up similar clinics three years ago, including one right across the street from their main office in a shopping center.

The practice not only was able to retain its patients, but then could access electronic health records for those off-site visits, avoiding a bad drug interaction or other problems, said Dr. Olden, who has been a doctor for 34 years.

“And we’ve had some folks come into the clinics who don’t have their own primary care physicians,” he said. “So we’ve been able to move them into our practice.”

By opening clinics to compete with urgent care centers, Dr. Carl Olden’s practice in Yakima, Wash., was able to retain its patients and move some walk-ins into the fold.
Merger Maneuvers

The new deals involving major corporations loom over doctors’ livelihoods, intensifying pressure on small practices and pushing them closer to extinction.

The latest involves Walmart and Humana, a large insurer with a sizable business offering private Medicare plans. While their talks are in the early stages, one potential partnership being discussed would center on using the retailer’s stores and expanding its existing 19 clinics for one-stop medical care. Walmart stores already offer pharmacy services and attract older people.

In addition, the proposed $69 billion merger between CVS Health, which operates 1,100 MinuteClinics, and Aetna, the giant insurer, would expand the customer bases of both. The deal is viewed as a direct response to moves by a rival insurer, UnitedHealth Group, which employs more than 30,000 physicians and operates one of the country’s largest urgent-care groups, MedExpress, as well as a big chain of free-standing surgery centers.

While both CVS and UnitedHealth have large pharmacy benefits businesses that would reap considerable rewards from the stream of prescriptions generated by the doctors at these facilities, the companies are also intent on managing what type of care patients get and where they go for it. And the wealth of data mined from consolidation would provide the companies with a map for steering people one way or another.

On top of these corporate partnerships, Amazon, JP Morgan and Berkshire Hathaway decided to join forces to develop some sort of health care strategy for their employees, expressing frustration with the current state of medical care. Their announcement, and Amazon’s recent forays into these fields, are rattling everyone from major hospital networks to pharmacists.

Doctors, too, are watching the evolution warily.

“With all of these deals, there is so much we don’t know,” said Dr. Michael Munger, president of the American Academy of Family Physicians. “Are Aetna patients going to be mandated to go to a CVS MinuteClinic?”

Dr. Susan Kressly, a pediatrician in Warrington, Pa., has watched patients leave. Parents who once brought their children to her to treat an ear infection or check for strep, services whose profits helped offset some of the treatments she offered, are now visiting the retail clinics or urgent care centers.

What is worse, some patients haven’t been getting the right care. “Some of the patients with coughs were being treated with codeine-based medicines, which is not appropriate at all for this age group,” Dr. Kressly said.

Even doctors unfazed by patients going elsewhere at night or on weekends are nervous about the entry of the corporate behemoths.

“I can’t advertise on NBC,” said Dr. Shawn Purifoy, who practices family medicine in Malvern, Ark. “CVS can.”

Nurse practitioners allow Dr. Purifoy to offer more same-day appointments; he and two other practices in town take turns covering emergency phone calls at night.

And doctors keep facing new waves of competition. In California, Apple recently decided to open up its own clinics to treat employees. Other companies are offering their workers the option of seeking medical care via their cellphones. Investors are also pouring money into businesses aiming to create new ways of providing primary care by relying more heavily on technology.

Dr. Olden’s office door. In the age of urgent care centers and consolidations, the traditional doctor is being pushed closer to extinction.CreditDavid Ryder for The New York Times

Dr. Mark J. Werner, a consultant for the Chartis Group, which advises medical practices, emphasized that convenience of care didn’t equal quality or, for that matter, less expensive care.

“None of the research has shown any of these approaches to delivering care has meaningfully addressed cost,” Dr. Werner said.

Critics of retail clinics argue that patients are given short shrift by health professionals unfamiliar with their history, and may be given unnecessary prescriptions. But researchers say neither has been proved in studies.

“The quality of care that you see at a retail clinic is equal or superior to what we see in a doctor’s office or emergency department,” said Dr. Ateev Mehrotra, an associate professor of health care policy and medicine at Harvard Medical School, who has researched the retail clinics. “And while there is a worry that they will prescribe antibiotics to everybody, we see equal rates occurring between the clinics and doctor’s offices.”

Still, while the retail clinics over all charge less, particularly compared with emergency rooms, they may increase overall health care spending. Consumers who not long ago would have taken a cough drop or gargled with saltwater to soothe a sore throat now pop into their nearby retail clinic for a strep test.

Frustration with the nation’s health care system has fueled a lot of the recent partnerships. Giant companies are already signaling a desire to tackle complex care for people with a chronic health condition like diabetes or asthma.

“We’re evolving the retail clinic concept,” said Dr. Troyen A. Brennan, the chief medical officer for CVS. The company hopes its proposed merger with Aetna will allow it to transform its current clinics, where a nurse practitioner might offer a flu shot, into a place where patients can have their conditions monitored. “It requires new and different work by the nurse practitioners,” he said.

Dr. Brennan said CVS was not looking to replace patients’ primary care doctors. “We’re not trying to buy up an entire layer of primary care,” he said.

But people will have the option of using the retail clinic to make sure their hypertension or diabetes is well controlled, with tests and counseling provided as well as medications. The goal is to reduce the cost of care for what would otherwise be very expensive conditions, Dr. Brennan said.

If the company’s merger with Aetna goes through, CVS will initially expand in locations where Aetna has a significant number of customers who could readily go to CVS, Dr. Brennan said.

UnitedHealth has also been aggressively making inroads, adding a large medical practice in December and roughly doubling the number of areas where its OptumCare doctors will be to 75 markets in the United States. It is also experimenting with putting its MedExpress urgent care clinics into Walgreens stores.

Big hospital groups are also eroding primary care practices: They employed 43 percent of the nation’s primary care doctors in 2016, up from 23 percent in 2010. They are also aggressively opening up their own urgent care centers, in part to try to ensure a steady flow of patients to their facilities.

One Medical has centers in eight cities with 400 providers, making it one of the nation’s largest independent groups. 

HCA Healthcare, the for-profit hospital chain, doubled its number of urgent care centers last year to about 100, according to Merchant Medicine. GoHealth Urgent Care has teamed up with major health systems like Northwell Health in New York and Dignity Health in San Francisco, to open up about 80 centers.

“There is huge consolidation in the market right now,” said Dr. Jeffrey Le Benger, the chief executive of Summit Medical Group, a large independent physician group in New Jersey. “Everyone is fighting for the primary care patient.” He, too, has opened up urgent care centers, which he describes as a “loss leader,” unprofitable but critical to managing patients.

Eva Palmer, 22, of Washington, D.C., sought out One Medical, a venture-backed practice that is one of the nation’s largest independent groups, when she couldn’t get in to see a primary care doctor, even when she became ill. After paying the annual fee of about $200, she was able to make an appointment to get treatment for strep throat and pneumonia.

“In 15 minutes, I was able to get the prescriptions I needed — it was awesome,” Ms. Palmer said.

Patients also have the option of getting a virtual consultation at any time.

By using sophisticated computer systems, One Medical, which employs 400 doctors and health staff members in eight major cities, allows its physicians to spend a half-hour with every patient.

Dr. Navya Mysore joined One Medical after working for a large New York health system, where “there was a lot of bureaucracy,” she said. She now has more freedom to practice medicine the way she wants and focus more on preventive health, she said.

By being so readily available, One Medical can reduce visits to an emergency room or an urgent care center, said Dr. Jeff Dobro, the company’s chief medical officer.

As primary care doctors become an “increasingly endangered species, it is very hard to practice like this,” he said.

But more traditional doctors like Dr. Purifoy stress the importance of continuity of care. “It takes a long time to gain the trust of the patient,” he said. He is working with Aledade, another company focused on reinventing primary care, to make his practice more competitive.

One longtime patient, Billy Ray Smith, 70, learned that he needed cardiac bypass surgery even though he had no symptoms. He credits Dr. Purifoy with urging him to get a stress test.

“If he hadn’t insisted,” Mr. Smith said, “it would have been all over for me.” Dr. Purifoy’s nurse routinely checks on him, and if he needs an appointment, he can usually see the doctor that day or the next.

“I trust him 100 percent on what he says and what he does,” Mr. Smith said.

Those relationships take time and follow-up. “It’s not something I can do in a minute,” Dr. Purifoy said. “You’re never going to get that at a MedExpress.”



Dignity Health’s net income more than doubles

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Dignity Health, a 40-hospital system based in San Francisco, saw its financial position improve in fiscal year 2018 as it booked higher revenue and benefited from a one-time payment related to a transaction that closed earlier this year.

Dignity recorded revenues of $14.2 billion for the year, which ended June 30, compared with revenues of $12.9 billion for fiscal 2017, according to recently released financial documents

In fiscal 2017, Dignity and other California healthcare providers struggled with loss of funds from the state’s provider-fee program, which is designed to help hospitals and health systems treat a large number of indigent patients. The program levies a tax on hospitals, and the state then pools funds to receive federal matches for Medicaid dollars. The Medicaid dollars are distributed back to hospitals based on the number of indigent patients they treat.

In November 2016, California’s participation in the provider-fee program was made permanent with the passage of Proposition 52. However, CMS did not approve the first iteration of the program, which covers the period from Jan. 1, 2017, to June 30, 2019, until December 2017. Accordingly, Dignity’s financial statements for fiscal year 2018 include $447 million in provider-fee payments for the most recent fiscal year plus an additional $217 million of catch-up related to fiscal 2017.

Although the provider-fee payments helped improve Dignity’s financial picture, the system said its unpaid Medi-Cal costs totaled $556 million even after the inclusion of the provider-fee and supplemental payments.

After factoring in expenses, which climbed 6 percent year over year, Dignity ended fiscal 2018 with operating income $529.3 million. That’s compared to fiscal 2017, when the system recorded an operating loss of $66.8 million. The system’s net income more than doubled year over year to $932.5 million.  

During fiscal 2018, Dignity’s financial position was boosted by a one-time gain of $120 million related to a deal with Mechanicsburg, Pa.-based Select Medical to combine occupational medicine and urgent care businesses. Under the transaction, which closed in February, Select Medical’s Concentra Group Holdings and Dignity’s U.S. HealthWorks combined.

Daniel Morissette, Dignity Health’s senior executive vice president and CFO, said several of the system’s balance sheet-related financial metrics also improved in fiscal 2018.

“Our balance sheet continued to strengthen, and cash flows were solid, as we remain focused on further enhancing the long term financial viability of our enterprise and honoring our commitments to the many communities and constituents we serve,” he said in a press release.


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.