Phoenix Children's ending Banner NICU management

Phoenix Children's Hospital will no longer run the neonatal intensive-care unit at Banner Good Samaritan Medical Center, Phoenix, the largest hospital in the not-for-profit Banner Health system.

Phoenix Children's (DOC) and Banner both announced Monday that the lease to run the NICU at Good Samaritan had been terminated, though the groups disagree about who broke the lease, which had been in place since 1999. The two sides agree that it was Phoenix Children's agreement made in 2011 with the former Catholic Healthcare West—now Dignity Health—that led to the breakup. There's no formal date when Phoenix Children's will vacate Good Samaritan, said Banner spokesman Bill Byron. Banner Health will take over the unit's operations, and current staff will be offered jobs, he added. Both parties said patient care won't change after the termination.

The lease included a noncompete clause. An arbitrator ruled on Dec. 19 that Phoenix Children's deal with Dignity was grounds to terminate the lease to manage the one-floor NICU, Byron added. Banner officials felt it wasn't appropriate to allow a provider aligned with a rival to offer services at its flagship hospital. Dignity owns three hospitals in Arizona, while Phoenix-based Banner owns 10 hospitals in the state.

The deal was agreed upon in 1999, but the terms went into effect in 2003, according to a Banner Health financial report. Phoenix Children's paid a nonrefundable fee of $10 million and since 2007 had been paying $5.3 million in annual rental fees. The lease was set to expire in 2027, but starting in 2020 either side could have opted for early termination. Phoenix Children's had prepaid all rent until 2017, which is when rental costs were set to increase by $1.2 million a year. It's unclear what will happen to those payments.

The NICU serves about 35 individuals each day, Phoenix Children’s spokeswoman Debra Stevens said. While Phoenix Children's and Banner's current deal began only in 1999, Stevens said the relationship at Good Samaritan extends 30 years, as Phoenix Children’s once operated as a hospital within a hospital at Good Samaritan before building its current facility.

There are about 100 physicians from two local doctors groups working at the NICU, along with 200 other employees, Stevens said. The deal's termination will allow Phoenix Children’s to pursue other opportunities without needing to adhere to the noncompete clause, she added.

Officials from San Francisco-based Dignity declined to comment.