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Dignity-CHI link’s plus and minuses

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The talks between Dignity Health and Catholic Health Initiatives on affiliating or doing an outright merger have led analysts to point out  that a link could produce some economies of scale and take advantage of the systems’ complementary geographies but  that there are also some big potential problems, such as the systems’  huge debt.

Moody’s Investors Service says that a merger between the two would be “a net positive.”

An outright merger would create America’s largest not-for-profit hospital company, with combined annual revenue of $27.8 billion and 142 hospitals. The current leader, St. Louis-based Ascension, has annual revenue of $20.5 billion.

San Francisco-based Dignity has leading market-share positions in Southern California, the San Francisco Bay Area, Arizona and Nevada. Dignity has 39 acute-care hospitals and 250 ancillary-care sites.

CHI’s 103 hospitals are  situated where Dignity has none. The system, which posts annual revenue of about $15.2 billion, has 11 big multi-hospital hubs. Modern Healthcare noted that  Englewood, Colo.-based CHI’s hospitals are spread over 22 states, “providing economic diversity that makes it less susceptible to reimbursement pressures in a single state or region that might or might not have expanded Medicaid, for instance.”

But Fitch Ratings says that both systems have high debt, and both have underperformed financially in the past year.  In the case of CHI, that led Fitch to downgrade  CHI’s debt three notches from A+ to BBB+ with a negative outlook.

The publication noted that “high debt levels can be worrisome in an industry going through massive changes in reimbursement from fee-for-service to value-based payments and constant demands for capital to buy new IT systems, upgrade clinical equipment and open patient access points.”

“The teams  {of the two systems} wrestling over whether to join forces will focus on big-picture issues—such as whether larger scale would produce costs savings, better care and a stronger credit structure—so they can reach a conclusion by early 2017. ”

To read the Modern Healthcare article, please hit this link.

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