Virginia Mason, CHI Franciscan merger is official

The Seattle institution Virginia Mason is now officially part of CommonSpirit Health, the systems announced Tuesday.

Virginia Mason has merged with Tacoma, Wash.-based CHI Franciscan to form Virginia Mason Franciscan Health, a subsidiary of Chicago-based CommonSpirit. The new health system has nine acute-care hospitals—the largest in the Seattle-Tacoma region—and estimated annual revenue of more than $4 billion.

“Our intention is to build on the legacy successes of both organizations to be an even more consumer-directed, consumer-driven healthcare organization, meeting our patients when, where and how they would like to be seen,” said Dr. Gary Kaplan, co-CEO of Virginia Mason Franciscan Health and former CEO of Virginia Mason.

The deal continues what’s been a pattern of explosive growth for CommonSpirit, a 137-hospital system with almost $30 billion in fiscal 2020 revenue that itself formed through the 2019 merger of Catholic Health Initiatives and Dignity Health. Virginia Mason Franciscan is now bigger than its largest competitor with respect to hospital count, Renton, Wash.-based Providence, which has eight acute-care hospitals in the area.

The new system initially will be led by co-CEOs Kaplan and Ketul Patel, former CEO of CHI Franciscan and current president of CommonSpirit’s Pacific Northwest division. It’s headquartered in both Tacoma and Seattle, pending an integration process that’s expected to take up to 2 years.

Patel and Kaplan said they believe they have completed all necessary regulatory requirements, having submitted pre-transaction notifications to Washington state regulators and the Federal Trade Commission under the Hart-Scott-Rodino Act. Washington Attorney General Bob Ferguson has a history of heavily scrutinizing such deals, and even sued CHI Franciscan in 2017 over its affiliation with two physician groups over concern that the agreement would spark higher prices and lower competition.

“We believe very strongly that we’ve met all the requirements that we would have to do in the state of Washington and that’s why we were able to close when we did,” Patel said.

A spokesperson in Ferguson’s office said in July, when the health systems first announced their plans, that he would review a proposed transaction to ensure it does not violate antitrust laws. His office did not return a request for comment this week.

CHI Franciscan’s eight legacy acute-care hospitals were scattered throughout the Puget Sound, all within about an hour of Seattle. It didn’t have any hospitals in Yakima, where one of Virginia Mason’s two hospitals were located until it broke off from the system after the merger was announced. Virginia Mason’s flagship Virginia Mason Medical Center is in Seattle.

As part of the deal, Virginia Mason has agreed to stop providing elective abortions and participate in Washington’s Death with Dignity Act, which allows physicians to prescribe lethal doses of medication to terminally ill adults seeking to end their lives, Kaplan said. He said the health system will continue to provide contraception, LGBTQ services, palliative and end-of-life care and medically necessary abortions.

“We will fully inform patients of our choices and patients who choose services that we might no longer offer will be able to easily access those services in the community, as many have done to this point in time,” Kaplan said.

As a Catholic system, CHI Franciscan adheres to the church’s Ethical and Religious Directives for Catholic Health Care Services, which forbid providing services like abortions, contraception, physician aid-in-dying and gender transition surgery.

Virginia Mason has not previously said exactly which services it would stop providing. A spokesperson in July wrote in an email at the time that “Virginia Mason would ensure it does not cause CHI Franciscan to come out of compliance with the Ethical and Religious Directives (ERDs).” That concerned healthcare advocates like the ACLU of Washington, NARAL Pro-Choice Washington and End of Life Washington.

Kaplan clarified this week that Virginia Mason will remain non-Catholic and not subject to the ERDs. However, agreeing not to provide elective abortions and Death with Dignity services was a condition of the deal, he said.

Virginia Mason Franciscan Health has almost 300 sites of care, almost 5,000 employed physicians and affiliated providers and about 18,000 staff members. It includes the Benaroya Research Institute and the Virginia Mason Institute, which trains people on the world-renowned Virginia Mason Production System, a management process that helps providers operate more efficiently.

The Dec. 21 definitive agreement that preceded the closing holds that neither party in the newly-formed joint operating company will assume the others’ debt or liabilities. However, they have agreed to explore consolidating Virginia Mason’s outstanding debt into CommonSpirit’s. As of September 30, 2020, CommonSpirit’s total debt stood at $14.2 billion.

Both Virginia Mason and its new parent company have lost money in recent years. The former posted modest losses in each of the past two fiscal years, including a 0.8% loss margin in fiscal 2019 on about $1.2 billion in revenue.

CommonSpirit, meanwhile, reported steep operating losses in its first two fiscal years as a system, including a $602 million loss in fiscal 2019 on almost $21 billion in revenue and a $550 million loss in fiscal 2020 on $29.6 billion in revenue.


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