Trinity and Catholic Health East's news came a month after Ascension Health announced an agreement to take ownership of Marian Health System's 27 hospitals in Oklahoma, Wisconsin, Kansas and Minnesota. Ascension Health last week said it planned to sell its two Carondelet Health hospitals in the Kansas City, Mo.-area to HCA.
In January, Ascension Health created an umbrella company, Ascension Health Alliance, over its hospital system and stable of subsidiaries—to which the company recently added a group purchasing organization. Not long before that, Ascension Health formed a joint venture with a private-equity firm in 2011 that intends to buy Catholic hospitals in order to make sure they stay Catholic.
Another large Catholic player, then called Catholic Healthcare West, last year severed its formal ties to the Catholic church and moved forward under the name Dignity Health, with a commitment to continue its Catholic mission while expanding eastward by acquiring hospitals, Catholic or not.
Dignity Health in August paid $455 million to acquire U.S. HealthWorks, a network of 172 occupational health and urgent-care centers, deals that significantly increased the system's geographic footprint as well as its reach in outpatient care.
Trinity Health's hospitals are primarily in the Midwest, although the system owns 436-bed St. Agnes Medical Center in Fresno, Calif., and sponsors two small hospitals in rural Oregon. Its sole presence on the East Coast is 425-bed Holy Cross Hospital, Silver Spring, Md.
Catholic Health East operates hospitals from Fort Lauderdale, Fla., to Portland, Maine, although the system intends to sell its Mercy Hospital there to Steward Health Care.
An April ratings report by Moody's observed that a challenge for Trinity Health—though the system's operating income and cash-to-debt-service ratio have been solid—is that 41% of its cash flow in fiscal 2011 was generated in the economically strapped state of Michigan. Moody's noted the system had since made the significant addition of Loyola University Health System in Maywood, Ill., just outside Chicago, a deal completed at the start of its fiscal 2012.
“Both of our organizations are financially strong, we have good ratings,” Swedish said. “I would not anticipate there being a change, but obviously that's subject to review.”
Kay Sifferman, a Moody's analyst who follows Trinity, said Catholic Health East would benefit most from the diversification of cash flow and market risk. Catholic Health East has suffered from persistent operating losses at facilities in New Jersey, according to a Moody's June ratings report that also noted steady improvement in the system's operating margins and cash flow.
“It does appear that these organizations, to me, are trying to build scale and scope to position themselves for the next fairly significant transformation in payment reform, whether it's local, state or a federal move from encounter-based to payment systems really more oriented toward population management,” said Lawrence Garcia, an attorney at the Sacramento, Calif.-based office of Gordon & Rees, who worked for Catholic Healthcare West when it formed as a four-hospital system in 1986. He said a shared vision would best serve Trinity Health and Catholic Health East.
The organizations' boards met for the first time July 2. Persichilli said the meeting showed the two groups' cultures were a good fit: “It was like they had been meeting for years,” she said.
Swedish said synergy is rooted in the systems' similar histories, which date to a previous wave of hospital mergers and acquisitions.
Catholic Health East formed in 1998 when Allegany Health System, Eastern Mercy Health System and Sisters of Providence Health System merged. Two years later, Holy Cross Health System and Mercy Health Services formed Trinity. Swedish looked back at the groups' origins and called the merger a “natural progression.”
“Exceptional care is really a significant focus of ours as we come together so we can better serve people much more efficiently based on our Catholic tradition,” Swedish said.
The shared Catholic heritage helps, but it's not the only reason the pairing makes sense, said Neal Hogan, a managing director in the Boston office of BDC Advisors, a healthcare consulting firm.