Healthcare Business News
CHI President and CEO Kevin Lofton

CHI and PeaceHealth end merger talks

By Joe Carlson
Posted: April 3, 2013 - 8:30 pm ET

(Story updated at 8:30 p.m. ET.)

Just months before the creation of a $4 billion health system, the two Roman Catholic hospital operators behind the deal have abandoned talks for now, citing disagreements over back-office functions.

Discussions were suspended between 55-hospital Catholic Health Initiatives, based in Englewood, Colo., and PeaceHealth of Vancouver, Wash., which had sought to create an integrated health system spanning Oregon, Washington and Alaska. The new system would have included seven CHI hospitals and all eight of PeaceHealth's medical centers.

CHI President and CEO Kevin Lofton said the goal to complete the merger by June 30 had been seen as ambitious but doable, until discussions reached an impasse recently over what he called “shared services.” Those include things like bulk purchasing, revenue cycle and information technology functions.

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For example, Lofton said, if CHI lost 20% of its hospitals to a new organization it would then lose 20% of its purchasing power—which could have driven up prices for bulk supplies at CHI's remaining hospitals. To prevent that, CHI had sought to retain a purchasing role for the newly created system. But the two sides weren't able to come to terms on that or other administrative functions, Lofton said. He said the two sides had already agreed how to work out differences in how they handle Catholic ethical and religious directives. Antitrust analysis was not a concern because CHI and PeaceHealth don't own hospitals in overlapping markets.

Lofton noted that he would have supported an outright acquisition of PeaceHealth by CHI. “That would solve it all for me, but that was not what they envisioned,” he said.

PeaceHealth President and Chief Mission Officer Alan Yordy said that the creation of a distinct organization would have avoided many of the costs associated with an acquisition and would have been better able to deliver seamless service catered to the needs of the Pacific Northwest and Alaska.

“We felt this was a great solution,” Yordy said.

With that solution no longer on the table, Yordy said, PeaceHealth is in no hurry to find an alternative partner. “These partnerships come along and they will work when they make sense.”

PeaceHealth and CHI said in a joint statement that the organizations remain committed to exploring other opportunities to work together in the future. Lofton noted that more-limited clinical integration efforts among some PeaceHealth and CHI hospitals could lead to the kind of atmosphere that could potentially support future merger talks.

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