St. Joseph Health System, which owns three prominent hospitals in Orange County, is in talks to consolidate with Washington-based Providence Health and Service, another, larger nonprofit Catholic healthcare network.
“Discussions are in the early stages and specific details about a partnership have not been finalized,” the hospital groups said in a shared statement. Officials declined to comment further.
Marilyn Speirn, an executive with Providence Health in Oregon, told foundation members via email that the two networks have signed a letter of intent to form one “new, single organization” in 2016. Its structure will be hashed out in the coming months.
It’s the latest in a wave of mergers and partnerships in the health care industry, as hospitals try to fortify themselves amidst changes ushered in by the Affordable Care Act. Among other things, hospitals hope bigger size will translate to negotiating clout with insurance companies, which are also in the midst of large-scale consolidations.
These arrangements come in all types of “flavors,” said Jan Emerson-Shea, a spokeswoman with the California Hospital Association.
“The ACA really calls for hospitals and all other providers to become much more efficient and reduce costs and improve quality of care … and to look at what’s called the ‘continuum of care,’” said Emerson-Shea. “There are also a lot of the administrative functions like overhead costs, insurance, contract negotiations that can be streamlined and get more efficient.”
In her email to foundation members, Providence’s Speirn said, “the intention is not to reduce jobs, and these discussions are not designed to take jobs out of the system.”
Officials with St. Joseph Health System declined to comment further.
Based in Irvine, St. Joseph owns Mission Hospital Regional Medical Center in Mission Viejo, St. Joseph Hospital in Orange and St. Jude Medical Center in Fullerton. It is a dominant player in Orange County.
It has struggled financially, however, posting $29.6 million in losses in the fiscal year that ended in 2013, according to tax filings. Its largest Orange County hospital, St. Joseph in Orange, has laid off or eliminated 403 positions since 2011.
A larger system like Providence might find St. Joseph attractive because it will provide access to patients in new markets – Orange County and Northern California, for example, where St. Joseph Health operates but Providence does not – said Dylan Roby, a senior researcher and associate professor at the UCLA Center for Health Policy Research.
“Having more market power allows them to drive a harder bargain with insurance companies,” Roby said.
A Providence spokeswoman told Modern Healthcare that the deal would not be a joint venture, and neither system is being purchased.
Based near Seattle, Providence owns 34 hospitals in California, Alaska, Oregon, Washington and Montana. All of its California hospitals are in Los Angeles County, including Providence Saint John’s Health Center in Santa Monica, which it purchased last year.
“We are two mission-focused organizations which truly have the potential of being better together, delivering outstanding clinical care and providing a compassionate presence in all the communities we serve,” said St. Joseph Health CEO Deborah Proctor.
Proctor has previously announced that she will retire at the end of this year. She is the first woman who is not a nun to head the Catholic health system since it was formed in 1920 by the Sisters of St. Joseph of Orange, after a flu epidemic.
A merger would have to be approved by the California Attorney General’s office.
Two years ago, the Attorney General investigated the impact on patients when St. Joseph Health affiliated with Hoag Memorial Hospital, creating a new entity that provides about one-third of health care in Orange County through a network of six hospital facilities, their affiliated physician groups and outpatient clinics.
The deal led to the creation of an umbrella group known as St. Joseph Hoag Health, which later formed a partnership with Children’s Hospital of Orange County.
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