Two of the biggest children’s hospitals in the U.S. have agreed to merge “to transform pediatric health in Southern California.”
Children’s Hospital of Orange County, best known as CHOC, announced in late December it is merging with Rady Children’s Hospital-San Diego.
The deal for the new combined parent entity is expected to close later this year, after regulatory approval. The merged hospital group will be called Rady Children’s Health.
“The whole focus is how do we better serve the families and the communities,” CHOC Chief Executive Kimberly Chavalas Cripe told the Business Journal.
“The timing is right. It’s been a challenging period for healthcare overall. It’s an indication that more collaboration is needed.”
The combination is the latest notable news for Orange County’s growing healthcare industry, where City of Hope, UCI Health and Hoag Memorial Hospital Presbyterian, among others, are spending billions of dollars to build hospitals and clinics.
Executives at the two hospital systems said the combination will permit children with rare diseases to see specialists in each other’s system, recruit talented specialists in their fields and expand access to clinical trials.
The combined entity, which will generate about $3 billion in annual revenue, will serve a total addressable market of around two million children.
“The main reason is to improve the care for the kids in our communities,” Rady CEO Patrick Frias said.
“It will enhance the care, the access, the next generation workforce and become an even better destination.”
Cripe, and Frias will be appointed co-CEOs of the new parent company.
Emotional Donation
CHOC, which was founded in 1964, is one of Orange County’s most beloved healthcare entities.
Besides its main campus in Orange, it also operates a satellite facility at Providence Mission Hospital in Mission Viejo. CHOC’s two campuses generate around $1 billion a year in revenue.
Their 400 beds had about 81,500 patient days in its recent fiscal year. They also reported about 207,000 outpatient visits.
Rady, which was originally founded in 1954, is a 511-bed hospital that has grown to care for about 272,000 children in the current fiscal year. Its annual revenue is about $2 billion for the year ended June 30.
The hospital in 2006 changed its name to honor Ernest and Evelyn Rady, who have been actively involved in the hospital since the 1980s, with Ernest serving on its board of directors.
The San Diego Business Journal ranked Rady as its 11th wealthiest resident worth an estimated $900 million, citing the Rich Register, a directory for fundraising professionals. Rady founded an insurance company called Westcorp that was bought by Wachovia in 2006 for $3.9 billion.
The Rady family has made several notable donations to the hospital over the years, including $60 million in 2006, $120 million in 2014 for the Rady Pediatric Genomic and Systems Medicine Institute and $200 million in 2019 to redesign its campus with the latest technology.
“We are fortunate in San Diego to have easy access to the best doctors, nurses, scientists, technicians and care providers for children in the world,” Ernest Rady said in a 2019 statement about the donation.
“Our most vulnerable population deserves strong advocates. It’s up to our community to make sure every child has the best possible care available.”
Frias and Cripe are both well known in their business communities.
Frias was named a CEO of the year in 2022 by the San Diego Business Journal while Cripe, who has been CHOC’s CEO since 1997, was a winner in 2000 of the Business Journal’s annual Women in Business Awards.
The Business Journal last year also honored Cripe as one of its 50 most influential people shaping the future of healthcare in Orange County.
Both are spearheading major construction projects.
CHOC is constructing a 330,000 square foot facility tower costing an estimated $373 million at its Orange campus. In August, Rady broke ground on the largest construction project in its nearly 70-year history: a seven-story, 500,000-square-foot Intensive Care Unit and Emergency Services Pavilion slated to open in 2027.
Together
The two hospitals have been working together for the past decade on a variety of projects.
“We have years and years of collaboration,” Cripe said. “From CHOC’s perspective, the pandemic – everything that’s been coming our way – has created a lot of awareness that these are challenging times.”
About 18 months ago, they started talking about merging. Frias said CHOC has expertise in areas that are difficult to find experts, like gastrointestinal diseases.
“We’ve been referring to and getting support from CHOC,” Frias said.
Rady in 2018 began a project called Baby Bear, a rapid Whole Genome Sequencing initiative that diagnoses infants with rare diseases within a couple of days.
“They are national leaders in this area,” Cripe said.
Sharing expertise among the two systems, which together will employ 11,000, is a key reason for the merger, the executives said.
Children with rare diseases will benefit if the other entity also has patients with the same illnesses, they said.
“It lets you share experiences and recruit some super specialists,” Cripe said.
The new entity will be able to combine its recruiting efforts.
“All of us are competing for the same talent,” Cripe said. “It is getting more and more challenging to recruit and retain talent.”
One of the alluring aspects of recruiting specialists will be access to clinical trials at university hospitals. Rady has close ties with the University of California San Diego while CHOC works with the University of California, Irvine.
Unlike many mergers and acquisitions, there won’t be job cuts, the pair said.
“We haven’t looked at things like that,” Cripe said. “Our sole focus is on the patients we’ll be serving.”
The combined entity is taking on the Rady name to deemphasize Children’s Hospital of Orange County.
“We’ve outgrown that name,” Cripe said. “A good number of our patients come from outside the county.”
Top 10
This year, for the first time, Rady was named onto U.S. News Top 10 children’s hospitals in the country, ranking No. 9 on the 10-member list, two spots behind No. 7 Children’s Hospital Los Angeles.
“The secret for all of us is the focus on quality of care and outcome,” Frias said about joining the top 10.
While CHOC didn’t make the top 10, the magazine did rank it on its lists for seven specialties: neonatology; cancer; diabetes and endocrinology; neurology and neurosurgery; orthopedics; pulmonology; and urology.
The pair said it’s not clear how the combined entity will be affected in the next ranking.
“Our cultures are aligned,” Frias said. “It made a lot of sense to come together in this manner.”
Cripe added that teams at both hospitals work well together.
“Children’s hospitals have a special mission,” she said. “These are two very high-quality pediatric centers coming together to accelerate access.
“We’re very excited to help this new health system where we can train the next generation.”
