Catholic Health Initiatives, Dignity Health explore alignment

November 15, 2016


Two of the nation's largest nonprofit health care systems — Catholic Health Initiatives and Dignity Health — said on Oct. 24 that they are exploring an alignment of their systems. They did not comment on the exact nature of the new relationship under consideration, beyond saying they have signed a nonbinding letter of intent to allow their boards and sponsors to examine if a closer alignment between the systems will expand their mission of service, increase patient access to care and enhance the systems' clinical excellence.


Lloyd Dean, president and chief executive of San Francisco-based Dignity Health, said in a statement, "Through a stronger strategic and financial foundation, an aligned ministry would accelerate our ability to enhance our healing ministry into the future."

Kevin Lofton, chief executive of Englewood, Colo.-based CHI, said, "Together, we could enhance our shared ministry as the health care industry transitions to a system that rewards the quality and cost-effectiveness of care."

Both systems include Catholic and other-than-Catholic health care facilities. The systems anticipate their discussions will continue through early 2017.

Mapping a future
The organizations geographically complement one another, with no geographic overlap of acute care facilities, according to the systems. CHI operates in 18 states including parts of the Northeast, South, Midwest and Northwest. CHI has 103 hospitals. Dignity Health has 39 hospitals in California, Arizona and Nevada, three states where CHI does not have facilities. Dignity Health says its health care network extends into 22 states; its U.S. HealthWorks subsidiary, which operates occupational health and urgent care centers, has clinics in 21 states including California and Arizona. U.S. HealthWorks doesn't operate in Nevada.


According to each system's latest public financial reports, CHI has total assets of $22.4 billion; and Dignity Health has $17.1 billion in total assets.

In CHI's third quarter report for fiscal year 2016, the most recent figures publicly available, the system reported total operating revenue of $12. 2 billion for the nine months ending March 31. It reported an operating loss of about $266 million for the period, compared to operating income of $144 million in the first three quarters of the previous fiscal year. Dignity Health's report for its 2016 fiscal year ended June 30 shows total operating revenue of $12.6 billion with an operating loss of $63 million. The system had an operating gain of $423 million in the 2015 fiscal year.

CHI said it provided $1.6 billion in total financial assistance and community benefit in fiscal year 2015, including programs and services to the poor, free clinics, education and research. That figure also includes about $600 million in unpaid cost of Medicare.

For fiscal year 2016, Dignity Health provided $2.2 billion in community benefit and care of the poor, according to information from the system. That figure includes about $895 million in unpaid Medicare costs.

CHI has about 100,000 employees; Dignity Health has roughly 62,000 employees.

Inflection point
Dignity Health Chief Financial Officer Dan Morissette said in an investor webcast in June that the system is growth oriented. "Health care is at an inflection point, and we at Dignity Health are embracing this moment," he said. He and other Dignity Health executives said at the time that Dignity's patient volume continued to grow, but its payer mix had shifted, as it was meeting the needs of a growing Medicaid population and facing heightened competition for patients with commercial insurance. Medicaid typically reimburses at a lower rate than private health insurance.


One strategy in use at Dignity is to increase and create attractive access points to reach more patients outside of traditional hospital settings, executives said during the call, though they were clear that Dignity remains committed to care for poor patients as part of its mission.

The systems are going through other changes as well. For instance, after recording losses for its QualChoice Health insurance division, CHI said in June it plans to sell QualChoice Health.

Looking ahead
In September, CHI and Dignity announced the Precision Medicine Alliance, a 50-50 joint venture between the two health care systems. They said the collaboration will speed the use of emerging approaches for disease treatment and prevention that take into account unique characteristics of individuals, such as variability in their genes, microorganisms in the body, health history and more.

Executives from the two systems spoke about their similar mission and values at the time, and that shared "commitment to care for all, including those who are poor and underserved," was reiterated in the brief Oct. 24 statement announcing that the systems are exploring alignment. Neither system commented beyond the statement.

CHI was founded in 1996, when three health care systems, representing 10 congregations of women religious, consolidated into CHI. They joined together under Catholic Health Care Federation, which had been the public juridic person of Catholic Health Corp. The public juridic person allows religious and laity to come together to carry out the role and responsibility of sponsorship. CHI has grown rapidly in recent years. It has doubled its revenue in the past six years, principally through acquisitions.

The present day Dignity was formed in 1986 when two congregations of the Sisters of Mercy joined 10 hospitals together to form Catholic Healthcare West. The system grew to 39 hospitals with four additional sponsoring congregations joining the organization. In 2012, the system changed its name to Dignity Health as part of a governance restructure. At the time, Dignity said it would remain rooted in the Catholic tradition but would no longer be an official ministry of the Catholic Church. Although the system is not Catholic, 24 of its 39 hospitals are Catholic, according to Dignity's website.


Copyright © 2016 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2016 by the Catholic Health Association of the United States

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