The completion of a $3 billion merger brings new market strength to Catholic Healthcare West, while giving it control of part of the nation's second-largest not-for-profit healthcare system.
With combined 1994 revenues of $2.3 billion, the consolidation of San Francisco-based CHW and Daughters of Charity National Health System-West of Los Altos, Calif., will create a healthcare system of 24 hospitals and more than 8,000 affiliated physicians in Arizona, California and Nevada (See chart). The system created last week will still be called Catholic Healthcare West.
"In the early stages of managed-care penetration, an alliance may make sense, but clearly with what's occurred in the Western region, it isn't strong enough," said Richard J. Kramer, who will remain as president and chief executive officer at CHW. "As we read where the industry is going and the impact of employer coalitions in the Western United States, we providers are merging to match up with payers."
As an example, Kramer cited the Pacific Business Group on Health, which represents 24 major employers, 3 million employees and $3.5 billion in health benefits in the West. It demands a full-service provider network.
With the addition of DCNHS-West, CHW lands six hospitals, including two in the Los Angeles area, where it had no hospitals before.
The transaction involves no exchange of assets, but CHW will assume nearly $350 million in debt from DCNHS-West. The combined system will have $3 billion in assets.
Officials of DCNHS, based in St. Louis, agreed their operation would be better run by being more concentrated in the West. "The Daughters are realizing that healthcare is much more driven by regional and local influences," said Anna Mullins, who had been regional executive and acting CEO at DCNHS-West and is now senior vice president at CHW. She is working under Larry Wilson, CHW executive vice president and chief operating officer.
DCNHS' Western region was the system's smallest, representing less than 20% of its $5.5 billion in 1994 assets, according to MODERN HEALTHCARE's 1995 Multi-unit Providers Survey and the system's own information.
The sponsoring religious order,Religious healthcare
Daughters of Charity, Province of the West, will seat two nuns on CHW's corporate board, which signs off on all major business transactions. CHW will now be governed by a board of eight "corporate members," who are the equivalent of shareholders in an investor-owned company.
The two new corporate members join as equal co-sponsors with two members from each of three other religious orders: Sisters of Mercy, Auburn, Calif.; Sisters of Mercy of Burlingame, Calif.; and the Adrian (Mich.) Dominican Sisters.
The Federal Trade Commission and both boards of directors approved the merger earlier this year (March 27, p. 6).