Trinity Health to acquire three-hospital system in Connecticut

(Story updated at 11:52 a.m. ET.)

Trinity Health will add three-hospital St. Francis Care to its portfolio to expand its footprint in New England.

Trinity will invest $275 million in Hartford, Conn.-based St. Francis in the first five years after the deal closing, which is expected to occur in late 2015.

St. Francis will become part of a regional health system under the Trinity umbrella that will be formed with Trinity's Sisters of Providence Health System in Springfield, Mass.

“Our board is thrilled to have this opportunity to work closely with St. Francis,” said Dr. Richard Gilfillan, Trinity's president and CEO. “St. Francis was clearly the leading organization that we thought could be a great partner. We had an incredible match of mission, culture, value and strategy.”

Gilfillan, who has put an ambitious population health strategy in place at Trinity for what he calls its transition to a “people-centered health system,” added that St. Francis is already working on a number of innovative programs for conditions such as multiple sclerosis and cardiovascular disease.

St. Francis' current president and CEO, Christopher Dadlez, will lead the newly formed entity. The system includes St. Francis' 569-bed flagship hospital, 72-bed Johnson Memorial Hospital and 30-bed Mount Sinai Rehabilitation Hospital. The three facilities will join Providence's 301-bed Mercy Medical Center as well as its behavioral health and continuing-care network.

Daniel Moen, Providence's president and CEO, will continue to lead that group.

The transaction requires a Certificate of Need filing from Connecticut's Office of Health Care Access as well as approval from the Vatican.

The definitive agreement marks the culmination of eight months of discussions between the two parties.

“Several years ago, we realized that we needed a partner for scale, size and mission,” Dadlez said. “When we started our discussions with Trinity, you could almost superimpose their vision on ours.”

Over the past five years, St. Francis has been moving to a value-based care model through a number of initiatives, including organizing its physicians under a single umbrella so it could move them onto an electronic health-record system as well as coordinate purchases for them.

But like many providers in the state, the system faced Medicaid cuts that totaled about $70 million over the past five years.

St. Francis reported a surplus of $32.7 million on $784.1 million in revenue for fiscal 2013, which ended Sept. 30, compared with a surplus of $5.9 million on $768.6 million in revenue for fiscal 2012. However, most of the gains came from its investment activity, and its operating margin actually declined to 1% from 2.2% the previous fiscal year.

But St. Francis witnessed a 40% improvement in its operating performance in fiscal 2014 as it tightly managed costs, Dadlez said, and financial necessity was not the primary motivator for the deal.

Nevertheless, Trinity's strong credit rating will allow St. Francis to more easily raise money and lower its borrowing costs.

Trinity, which was formed through the 2013 merger between legacy Trinity Health and Catholic Health East, has a set a three-year goal to achieve $300 million in savings from the combination.

It has divested or made plans to divest at least five hospitals since October 2013.

But the system also has been looking at ways to strengthen its regional ministries and expand its Catholic mission, Gilfillan said. “It's a logical part of our strategic plan.”

Trinity Health acquired Sisters of Providence through its 2013 merger with Catholic Health East.

Follow Beth Kutscher on Twitter: @MHbkutscher