Sansum, Cottage plan to create integrated health system

Sansum Clinic and Cottage Health System have signed a letter of intent to merge and create an integrated health system combining three hospitals and 23 ambulatory sites serving patients near Santa Barbara, Calif., according to a news release.

Financial terms weren't disclosed, but the parties plan on making an announcement by October. Cottage Health is a three-hospital, not-for-profit system that includes its flagship facility, 345-bed Santa Barbara Cottage Hospital. Cottage is one of three systems headquartered in Santa Barbara. There's also two-hospital College Health Enterprises and four-hospital Integrated Healthcare.

Sansum would serve as the new organization's charity arm, while Cottage would become a corporate member of Sansum. According to IRS filings submitted by all three of Cottage's hospitals, the three hospitals made about a combined $610 million in revenue on $555.1 in expenses for fiscal 2011.

“Further improvements in quality, outcome, and affordability will require formal collaboration among physicians and hospitals,” Cottage President and CEO Ron Werft said in a news release. “As healthcare reform takes hold, we are taking the necessary steps to meet the needs of patients in our communities.”

Cottage will provide Sansum capital to expand services, as part of the deal. Sansum, which runs 23 ambulatory clinics in Southern California with more than 150 affiliated physicians, turned $177.1 million in revenues on $173.8 million in expenses in fiscal 2011, according to IRS filings (PDF).

“The communities we serve and the patients who entrust their care to us would be the real beneficiaries of this merger," Sansum CEO Dr. Kurt Ransohoff said in the release. “Our ability to work together across the inpatient and outpatient care continuum is one of the many exciting parts of this proposed collaboration.”

Follow Ashok Selvam on Twitter: @MH_aselvam