OHSU, Legacy ink merger agreement; filing for state approval could take months

Oregon Health & Science University and Legacy Health announced Thursday that they have signed a definitive merger agreement and released some details about the deal, but they said it could take months to submit their plans to regulators for approval. .

Portland’s two health systems have been tight-lipped about the details of their merger plans in the nine months since OHSU and Legacy announced their merger plans last August, suggesting there are still important details to be ironed out between the two organizations. Thursday’s announcement suggests all major issues have been resolved.

OHSU and Legacy officials both said reaching an agreement between two large, historic organizations is complex and takes time and diligence.

“I think everything went as it should in terms of due diligence in terms of understanding how we could bring the two organizations together,” OHSU President Dr. Danny Jacobs said. “We had a lot of detailed conversations and we tried to make sure we got it right.”

Charles Wilhoite, chairman of the Legacy Health board of directors, said the health system “cannot and will not rush such a process because of the impact it will have on our patients, our people and the communities we serve. “

OHSU agreed to transfer $350 million, an amount that may be subject to closing costs, to the Legacy Health Foundation, which will be spun off as an independent foundation upon closing. OHSU will also spend $1 billion in capital improvements to Legacy Health assets over ten years after the transaction closes.

OHSU Board of Trustees Chairman Wayne Monfries said his organization will borrow money over time by selling bonds to finance the deal. He said Legacy’s $1 billion capital investment will go into new equipment, technology and facilities to support the system’s growth.

“We have built up the capital capacity over the last 15 years to be able to borrow funds to complete a transaction like this. This is a generational deal,” Monfries said. “By making capital investments … we believe we will grow the system, have a better system, create better value for patients and be able to serve more people.”

Both health systems have faced financial headwinds in recent years, losing money due to rising costs and inflation. In April, OHSU reported an operating loss of $44 million in the nine months ended in March. Last year, Portland’s largest hospital chain, Legacy Health, saw its working capital drop by 40% in fiscal 2023.

Under the agreement, the Legacy Health facility will retain its current name but will be renamed the OHSU facility. For example, “Legacy Emanuel Medical Center” will be renamed “OHSU Emanuel Medical Center.”

The combined health system will be governed by a board that includes appointees from each agency, with the current Legacy board appointing six of the 11 members. The OHSU President will serve as Chairman of the Joint Board of Trustees. (The system will remain under the responsibility of the OHSU Board of Trustees, appointed by the Governor of Oregon.)

The agreement also says the combined system will retain all Legacy and OHSU employees “in good standing.” OHSU has about 22,000 employees, while Legacy has fewer than 14,000.

The Oregon Association of Nurse Practitioners, which represents OHSU and Legacy employees, expressed cautious optimism about the merger but expressed concerns about staffing levels and salary packages.

“As Oregon’s largest health care employer becomes Oregon’s largest health care employer, OHSU must be committed to maintaining and improving health care coverage and health care for the more than 30,000 health care workers who serve Oregonians across the state,” the union said in a statement Thursday. Welfare, which is critical to the success of this merger.

OHSU can terminate the deal if it determines that the cost of the divestiture or lost revenue will exceed $200 million within five years. If the deal is terminated, OHSU must pay a $25 million fee. Legacy can also terminate a deal if closing it would cause its foundation to lose more than $50 million.

OHSU and Legacy are the two largest health systems in the state, with a total of 10 hospitals, all but one of which are located in the Portland area. The combined operation will capture the largest share of the subway market.

But this level of consolidation will draw the attention of federal and state antitrust regulators. The Federal Trade Commission, the Oregon Attorney General and the Oregon Health Authority will review the deal to see whether it will lead to higher costs for customers, as some critics suspect.

The Oregon Health Authority’s new health care market surveillance program will review the deal. State lawmakers created the regulatory agency in 2021 to review business transactions involving health care operations such as hospitals. OHSU said both hospital systems are expected to submit applications to the state “in the coming months.”

Christine de Leon Covering stories from retail, small business and data businesses. Contact her: kdeleon@oregonian.com.

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