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CHI and Dignity Health delay closing of merger


Catholic Health Initiatives and Dignity Health delayed the expected closing of their merger to Jan. 31 rather than the end of this month, as originally planned, Dignity Health announced in a release Friday.

“We continue to finalize the last steps to bring our operations together and to combine our ministries, including the completion of licenses, certifications and other administrative items. We are looking forward to completing our alignment, and we also want to make sure this is seamless for those we serve,” Dignity Health said in a public filing. CHI didn’t have any additional comment on the latest delay in a series of setbacks that have postponed the combination.

The Chicago-based not-for-profit system would have 140 hospitals, 150,000 employees, nearly $30 billion in revenue and more than 700 care sites across 21 states, including 30 hospitals in California, after the closing.

The California Justice Department conditionally approved the merger Nov. 21, capping the final major regulatory nod of the three-year merger talks. The Vatican signed off in October.

All but one of Dignity’s 15 non-Catholic hospitals will operate under a separate Colorado-based not-for-profit corporation, allowing it to continue medical services such as post-delivery tubal ligations that are deemed immoral by the church. A coalition of advocacy groups raised concerns about limiting reproductive health services, care for LGBTQ patients, or services for low-income and underserved communities.

The Justice Department told the entity—now named CommonSpirit Health—that it must support individuals who are homeless and co-locate, coordinate and integrate health services with housing across its California footprint. CommonSpirit will need to earmark $20 million over six years for the cause and partner with local governments and not-for-profit organizations.

The agency also required the health system to provide free care to patients earning up to 250% of the federal poverty level, among other mandates. The Colorado attorney general’s office said the merger would not materially change the organizations’ charitable giving.

Economists and policy experts have long decried the negative consequences of horizontal combinations like CHI and Dignity, particularly when they share the same territory. Their combined market power will allow them to increase prices, they argue. Executives claim that their minimal hospital overlap will mitigate competition concerns. The Federal Trade Commission did not object to the combination.

Dignity has stood on stronger financial footing than CHI. CHI saw its operating losses widen to $593.4 million in 2017 from $371.4 million in 2016, although non-operating income helped soften the blow. CHI rebounded in 2018, narrowing its net loss to $276.7 million after the organization cut costs and improved its revenue-cycle management. Dignity’s board meeting minutes revealed that its executives and directors were concerned about CHI’s financial position.

Dignity reported an operating income of $529.3 million in 2018 up from an operating loss of $66.8 million in 2017.

The companies have about $10 billion in debt and officials said they plan to combine their credit groups in three years. That could result in a credit downgrade for Dignity, analysts said.

Lloyd Dean and Kevin Lofton are splitting the CEO seat. Dean will have authority over operations and clinical, financial and human resources functions. Lofton will oversee advocacy, compliance, digital, information technology, international business, legal services, philanthropy, mission, sponsorship and governance, and system partnerships.

More than half of CommonSpirit’s executive team is currently with Dignity, 38% is from CHI and 8% is external, according to a recent public filing. They have a multiyear lease in Chicago’s West Loop. The companies will maintain their corporate offices in Denver and San Francisco for the foreseeable future.

Tara Bannow contributed to this report.