KentuckyOne Health said the proposed merger of its parent company could bolster health care innovation, but a local observer said he worries the deal will complicate the local health system’s fiscal and organizational challenges.
KentuckyOne’s parent, Catholic Health Initiatives, said Monday that it had signed a letter of intent to explore a merger with Dignity Health.
The merger would combine two huge nonprofit health systems: Dignity, based in San Francisco, operates 400 care centers, including hospitals, in 22 states and employs 62,000, including more than 9,000 physicians. CHI operates 102 hospitals in 19 states and employs 95,000, including nearly 4,000 physicians. In their most recent annual reports, the two systems reported combined annual revenue of $28.3 billion.
KentuckyOne Health includes Louisville facilities, including Jewish and University hospitals and the James Graham Brown Cancer Center.
David McArthur, KentuckyOne’s spokesman, told IL via email that the announcement does not change the organization’s commitment to health and wellness.
“Alignments like this can have great benefit on health care innovation and clinical advancement nationwide,” he said.
However, both CHI and Dignity have struggled financially.
Dignity in September said it lost $238 million in its fiscal year ended June 30. CHI during the same period lost $57 million. Both Moody’s and Standard & Poor’s downgraded the company’s debt this year. In April, S&P also revised its outlook from stable to negative on Dignity, citing a “weakening financial profile.”
Dr. Peter Hasselbacher, emeritus professor of medicine at UofL and president of the Kentucky Health Policy Institute, told IL that the proposed deal could complicate the already difficult relationship between KentuckyOne Health and its partners, which recently exchanged barbs over millions of dollars in back payments.
KentuckyOne has a joint operating agreement with University Hospital, for which it controls 90 percent of income and loss.
“A recent letter from the University entities to KentuckyOne uses language that appears to me to be preparing the way for a termination of the partnership agreements,” he said. “Any potential termination is going to be difficult and probably expensive in any event. A merger of CHI with another entity only complicates matters exponentially.”
Hasselbacher also noted that the size of the two entities could prompt some scrutiny from antitrust officials.
While hospital leaders have said that they can reduce costs by combining their efforts and reducing duplication — for example by offering open heart surgeries in just one hospital rather than several — federal antitrust regulators have generally worried that consolidation among health care providers can increase costs and lower incentives to improve quality and innovation.
The Federal Trade Commission, the antitrust agency that traditionally has overseen the health care provider market, has in recent years interfered even in mergers of relatively small hospital systems, sometimes with success, and sometimes not.