CommonSpirit Health to sell 14 Midwest hospitals to Essentia Health

CommonSpirit Health and Essentia Health signed a letter of intent to add CommonSpirit’s North Dakota and Minnesota facilities to Essentia’s network, the Catholic health systems announced Friday.

CommonSpirit, which formed through the 2019 merger of Catholic Health Initiatives and Dignity Health, is the largest Catholic health system in the country with 137 hospitals and around $30 billion in annual revenue. Duluth, Minn.-based Essentia would add 14 Midwest CHI-branded hospitals—a tertiary hospital in CHI St. Alexius Medical Center and 13 critical-access hospitals—to its current 14-hospital network, in addition to CHI home health and hospice agencies. They plan to complete the deal, pending customary regulatory reviews, this summer.

“CommonSpirit wants patients in this region to have access to a strong network of rural and tertiary hospitals, primary and specialty care, and telehealth services,” Dr. Cliff Robertson, senior vice president for CommonSpirit’s Midwest division, said in prepared remarks. “Essentia Health is well-positioned to integrate these facilities into a continuum of care, while carrying on the Catholic heritage and mission of these facilities.”

CommonSpirit has been steadily expanding. Virginia Mason merged with Tacoma, Wash.-based CHI Franciscan to form the Virginia Mason Franciscan Health, a jointly operated 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.

Essential Health reported a $27.1 million operating income on $2.19 billion of operating income in its 2020 fiscal year ended June 30, down from a $53.5 million operating income on $2.17 billion of operating income in 2019, according to Modern Healthcare’s financial database.

CommonSpirit has incurred steep operating losses in its first two fiscal years as a system. It recorded 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.

Essentia laid off 900 employees—about 6% of its workforce—in May to mitigate a reported $100 million loss resulting from COVID-19-related service restrictions.

The health system is amidst a $900 million expansion and update of its Duluth campus to be completed in 2023, although that capital project funding is drawn from separate operating funds.

Although COVID-19 has derailed or delayed some healthcare transactions, industry observers expect a more consolidated acute-care sector post-pandemic. Financially distressed—often smaller, rural institutions—will likely seek mergers, acquisitions or other partnerships.

Federal regulators pledged to closely scrutinize hospital deals and head off opportunistic mergers proposed during the pandemic, given their propensity to increase costs. They will weigh potential anticompetitive effects with providers’ claims that they will have to pare down services or close as a result of COVID-19.


Tags: covid-19, pandemic

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