CommonSpirit Health’s CHI Franciscan and Virginia Mason Health System took a key step toward finalizing their planned merger this week.
The health systems have signed a definitive agreement, a legal document the specifies how the transaction would be structured and how debt would be allocated. Washington state’s Attorney General, who previously sued CHI Franciscan over antitrust concerns, has said he plans to review the deal to make sure it won’t hamper competition.
Under the plan, the parties would be governed and managed by a new joint operating company, a subsidiary of Chicago-based CommonSpirit Health. The not-for-profit chain operates 137 hospitals in 21 states. It posted $167 million in operating income in the first quarter of its fiscal 2021 on $7.7 billion in revenue, a 2.2% margin. The gain was comprised of federal coronavirus relief grants, without which CommonSpirit would have lost $25 million in the quarter.
The CHI Franciscan-Virginia Mason deal would create a system of nine hospitals, two from Seattle-based Virginia Mason, a $1.2 billion system and the rest from Tacoma, Wash.- based CHI Franciscan. It also includes Virginia Mason’s Benaroya Research Institute, a not-for-profit organization in Seattle.
Despite the pending attorney general review, the parties said in a regulatory filing they still believe their proposed deal, originally announced in July, will close on or around Jan. 1, 2021. The parties declined to comment beyond the filing.
News of the planned merger prompted Virginia Mason’s hospital in Yakima, Wash. to announce it will part ways with the health system. The hospital’s board cited a desire to stay independent, but many Washington state residents have aired concerns about Virginia Mason’s stated plan to adhere to rules set by the Catholic church, including a ban on abortion, contraception and sterilization, once the deal is complete.
The definitive agreement holds that none of the parties will assume the others’ debt or liabilities. However, they have agreed to explore consolidating Virginia Mason’s outstanding debt into CommonSpirit’s, subject to feasibility and market conditions. As of September 30, CommonSpirit’s total debt stood at $14.2 billion.
The parties signed the definitive agreement on Dec. 21 and made it public through a regulatory filing on the evening of Dec. 23.
The definitive agreement says that CHI Mercy Medical Center in Roseburg, Ore. and CHI St. Anthony Hospital in Pendleton, Ore. would not be part of the proposed joint operating company. It does not appear those facilities were originally contemplated as part of the deal.