CommonSpirit’s CHI Franciscan inks deal to explore combination with Virginia Mason

Dive Brief:

  • CHI Franciscan and Virginia Mason Health System — two Washington state health systems — have signed a deal to explore the possibility of combining the two systems through a joint operating company. Chicago-based CommonSpirit, one of the nation’s largest nonprofit health systems, is the parent company of CHI Franciscan.  
  • Together the two would operate 12 hospitals, more than 250 sites of care and would employ more than 21,000 people around the Puget Sound region.
  • The new system would be run jointly by the CEOs of both systems: Ketul Patel of CHI Franciscan and Gary Kaplan of Virginia Mason. Each organization would control the same number of board seats. The two hope to finalize the process by the end of 2020.

Dive Insight:

The combination comes during a turbulent time for health systems as they attempt to weather a global pandemic, though COVID-19 was not mentioned in Thursday’s statement from the two organizations.

The organizations contend that by combining they can develop novel care delivery models, increase access and “enhance” quality. Yet, Kaplan, CEO of Virginia Mason, previously expressed skepticism of “multiregional conglomerates” in an article that appeared in the September issue of Seattle Business magazine.

“The evidence increasingly suggests that on the espoused intentions of quality care, access to care, economies of scale, the achievements are few and far between,” Kaplan, who is also a physician, said said. “The real impact is to increase prices. I don’t think that’s what our communities or our society need.”

Indeed, much research has concluded that provider consolidation does result in higher prices for consumers.

CHI Franciscan’s parent company, CommonSpirit, operates 137 hospitals and more than 1,000 sites of care across 21 states. Tacoma-based Franciscan has 10 area hospitals while Seattle-based Virginia Mason has two in the state of Washington. 

CHI Franciscan generated revenue of $2.45 billion and Virginia Mason reported revenue of $1.15 billion last year.

This won’t be the first time the two have worked together. Recently, the two have partnered on obstetric and women’s health and radiation oncology, Thursday’s statement noted.

“We looked at a variety of models and partnerships and, through our existing affiliation with CHI Franciscan, came to the clear conclusion that combining our organizations to form a new health system would allow us both to shape health care nationally and continue our focus on the patient experience,” Kaplan said in the statement.

It appears the pandemic has yet to dampen mergers and acquisitions in the healthcare sector, and consulting group Kaufman Hall predicts a significant uptick in M&A is on the horizon.