CHI, PeaceHealth suspend talks on forming regional system

April 15, 2013


Catholic Health Initiatives of Englewood, Colo., and PeaceHealth of Vancouver, Wash., have suspended their talks to form a regional health system in the Northwestern U.S. The systems had signed a nonbinding letter of intent in August and had expected to complete the deal by June 30.

The joint venture would have included 16 hospitals — seven of them CHI facilities and nine of them PeaceHealth's — and a network of other health care operations in Alaska, Oregon and Washington. The combined organization would have produced nearly $4 billion in annual revenue and would have employed about 26,000 staff.

At the time they signed the letter of intent to combine their Northwestern facilities, CHI and PeaceHealth said the deal would be an integration of operations, not a merger or acquisition. The newly formed regional health care system would not have been Catholic; but, plans had called for CHI's and PeaceHealth's sponsoring organizations to independently sponsor the Catholic facilities with which they had historical ties, preserving their Catholic identities.

In a joint release April 3, the systems said that they were unable to develop an integrated regional organization that would serve the best interests of both organizations.

"It was a very amicable decision and I fully expect us to stay in dialogue," said Alan Yordy, PeaceHealth president and chief mission officer. "There were some issues that involved long-term contracts and commitments that each organization made that just made it much more difficult to get to a true partnership. And it's not to say that those obstacles may not be able to be removed in the future, so we left it as suspending discussions as opposed to ending discussions, and I think that's a really important point here."

Kevin Lofton, CHI president and chief executive, said CHI's and PeaceHealth's sponsors already had agreed on the mission, vision and values of the proposed regional organization; and a committee of executives from both systems had been filling leadership posts and structuring the new organization when CHI and PeaceHealth determined that they could not overcome some complex challenges in how they would merge their operations. Plans had called for CHI to "carve out" its Northwestern U.S. operations to create a 50-50 partnership with PeaceHealth. Extracting that region's operations from CHI and determining how to handle issues like debt funding proved to be unfeasible, Lofton explained.

Yordy said that over the past five years, PeaceHealth and CHI have had many conversations about joining forces. Some consideration was given to the possibility of CHI acquiring PeaceHealth outright. "An acquisition is always very expensive because there is always a valuation and exchange of money that goes with an acquisition É So our preference certainly was a partnership where you could keep the resources for the care of the vulnerable — keep them in the community — as opposed to spending them on the acquisition. And that was the position we landed on. Partnerships are very hard because they involve give and take, but in the interests of our communities ultimately we thought the greatest benefit to the community and the patients was that approach."

CHI has regional agreements elsewhere in its 17-state network, including in Colorado and Ohio, but most of those arrangements are joint operating agreements in which each partner retains ownership of its facilities, according to Lofton. That was not the case for the model CHI and PeaceHealth had planned to adopt.

CHI and PeaceHealth said in their joint release that they would continue to talk with each other about "opportunities to work together to strengthen their respective ministries."

Lofton and PeaceHealth's Peter Adler said it is too early to say what those opportunities for partnership may be. Adler is senior vice president and chief strategy officer for PeaceHealth and chief executive of HealthVentures, the PeaceHealth subsidiary responsible for joint ventures and partnerships.

When CHI and PeaceHealth announced their negotiations last year, they said they had entered into discussions because of the rapidly changing health care environment that requires providers to take a more coordinated and integrated approach to health care delivery and for providers to assume more financial risk for caring for populations of people. They said that an integrated CHI-PeaceHealth regional system would have the size and scale to better navigate the new environment, including by forming new collaborations, increasing access to high-quality services, standardizing processes and reducing costs.

Adler said, "The vision we created in August was exactly the right vision," but the parties were unable to make that model work to meet the needs of CHI, PeaceHealth and the new organization.

Lofton said CHI is continuing to explore how to accomplish these goals, including in the Northwest U.S., through other partnerships and initiatives. CHI's Franciscan Health System of Tacoma, Wash., has an affiliation with Highline Medical Center of Burien, Wash., and is negotiating an affiliation with Harrison Medical Center of Bremerton, Wash.

Lofton said a key aspect of CHI's strategy moving forward is to establish clinically integrated networks of care. These arrangements would unite CHI facilities and nearby health care systems in aligning their physician practices and in determining how to deliver care more efficiently, working together.

Adler said PeaceHealth also will continue to explore how best to prepare for the new health care environment, including through ongoing talks with potential partners and through system improvements that focus on patient outcomes, that move toward population health management and that align better with payer incentives.

Adler said like most in the ministry, PeaceHealth remains focused on how to address the challenges of providing mission-based care in a complex and evolving health care delivery system. He said health care providers are "under siege" when it comes to the financial dynamics of providing care, and "the mission to serve the vulnerable puts an extra burden on us to operate efficiently and to be good stewards of our resources and to find ways to reduce complexity.

"Catholic health care in the U.S. has a calling and obligation to find creative and sustainable ways to continue to deliver care in the communities we serve," Adler said. "It is incumbent on us to be leaders in bold, creative ways" to improve care delivery.

He said of the CHI-PeaceHealth idea for a regional system, "we tried something different — creative and bold new ideas don't always work, though — but we feel this is our responsibility to try new things in service" of the communities PeaceHealth serves.

"I would hope Catholic health care continues to try different things more and more — that we keep experimenting" with new ideas, Adler said.


Copyright © 2013 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2013 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.