St. Joseph Health’s stated desire to improve healthcare delivery in its operating communities is leading it to create a large entity spanning most of the West Coast and over into Texas.
Early-stage negotiations are under way between Irvine-based St. Joseph and fellow Catholic hospital operator Providence Health and Services, which is based in Renton, Wash.
“There will be a new company—we don’t know what we’ll call that new company. That will be the overarching company, and we will all be integrated into one,” Deborah Proctor, chief executive of St. Joseph Health, said in an interview earlier this month.
Many details must still be worked out, such as a name for the new company, creation of one overarching board, and the home base of the new company’s chief executive and who that executive will be. The companies, though, said they want to combine to increase the availability and quality of services in their markets.
St. Joseph and Providence will retain their current administrative facilities in Irvine and Renton, Proctor said. The system office would be managed out of Renton, “and there will be a southern division managed from Irvine,” St. Joseph spokesperson Susan Solomon said.
St. Joseph Health used the word “partner” when announcing it signed a letter of intent “because there isn’t any exchange of assets. Each of us [will] continue to keep our own assets, but yes, we are fully going to integrate as one company,” Proctor said.
Providence has also said in other news reports that the deal wouldn’t be a joint venture and that neither system would be purchased by the other.
St. Joseph Health and Providence want to combine their financial and talent resources in order to improve health in their respective communities, according to Proctor.
“We think we can do that better if we come together,” she said. “We are coming together because we just think the gaps are so big as a result of the [Affordable Care Act]. There are still huge gaps in access to care—there are serious social problems that create a lot of our healthcare problems.”
Advantages
Proctor gave an example of advantages each organization brings to the other, mentioning Providence’s palliative care program for dying patients.
“We have palliative care also, but they have a more extensive program than we do. [Providence is] interested in how our medical foundation works. Our Heritage Medical Foundation has been very highly rated in the state,” she said.
The foundation is St. Joseph’s doctors group.
Combining operations could also benefit both entities in markets where an employer has multiple offices across states.
Proctor emphasized that St. Joseph and Providence are “very strong organizations” with good credit ratings, among other pluses.
“It’s very rare that you see a merger happen between two [Standard & Poor’s] AA-rated companies,” she said, meaning that many combinations result from one partner’s weakness.
Todd Hofheins, Providence’s chief financial officer, told the Puget Sound Business Journal that one benefit of combining would be consolidating debt.
A combined company would be “able to take on more debt and consolidate it to get better rates,” Proctor said.
A potential St. Joseph Health-Providence combination would create a health system with 43 hospitals and 13,544 licensed beds ranging from Washington state down to South County and east into Texas. All the facilities would retain their names.
St. Joseph Health has 1,372 licensed beds in its four OC hospitals.
It also collectively has 547 beds in Irvine and Newport Beach through its relationship with Newport Beach-based Hoag Memorial Hospital Presbyterian.
Providence has 1,749 licensed beds in its six Los Angeles County hospitals.
Proctor, who announced her retirement as St. Joseph CEO back in February, said she will stay through the transaction, which she estimated would close next March. She confirmed that no search is under way for her potential successor.
“There would not necessarily be a successor in the same role. That needs to be looked at,” she said, leaving open the question of whether there will be a local head or a single chief executive of the combined company.
St. Joseph officials emphasize that any combination with Providence wouldn’t impact existing relationships, including St. Joseph Hoag Health, the integrated regional health delivery network established by St. Joseph and Hoag Memorial Hospital Presbyterian in 2012.
“There’s nothing about this combination that should in any way affect or change the direction of St. Joseph Hoag Health,” Proctor said. “St. Joseph Hoag Health is a regional corporation that was put together to serve the needs of the residents of Orange County.”
Hoag said in a statement that it “will retain its unique identity and culture, respecting our Presbyterian roots.
“We join St. Joseph Health in anticipating the benefits to Hoag and our community that could come from this collaboration,” Hoag said, adding that its services would not be altered by any St. Joseph Health-Providence transaction.
Proctor also addressed a question about the future status of Richard Afable, St. Joseph Hoag’s chief executive: “At this time, there’s no anticipated change in any of our key positions.”
St. Joseph Health and Providence are in the process of due diligence and preparing regulatory applications. The combination has to be reviewed by California Attorney General Kamala Harris’ office and the Federal Trade Commission.
The pair doesn’t anticipate many antitrust issues because Providence and St. Joseph Health don’t share markets, Proctor said.
Besides California, Providence is in Alaska, Montana, Oregon and Washington, and St. Joseph operates in Texas as its additional market.
