The not-for-profit giants have signed a nonbinding agreement to evaluate “an alignment” between the systems, according to a release.
A full merger would create the nation's largest not-for-profit hospital company with combined revenue of $27.6 billion ahead of the $20.5 billion posted by Catholic-sponsored Ascension. A CHI-Dignity tie-up would leave it trailing only Kaiser Permanente as the largest not-for-profit health system. Kaiser, which has a giant managed care plan, posted revenue of $60.7 billion last year.
The companies did not disclose terms of the agreement, only alluding to last month's news that they had formed a partnership called the Precision Medicine Alliance, which the two systems called the nation's largest community-based precision medicine program.
"The potential to align the strengths of these two organizations will allow us to play a far more significant role in transforming health care in this country," CHI CEO Kevin E. Lofton said in a news release. "Together, we could enhance our shared ministry as the health industry transitions to a system that rewards the quality and cost-effectiveness of care."
The statement went on to identify ways the systems complement each other. For example, Englewood, Col.-based CHI has 103 hospitals in 18 states and focuses on clinical and home-health services in addition to research. Dignity "is well known for its work with innovative, diversified care-delivery partnerships."
CHI, however, is facing some financial struggles. The company was hit by a major bond downgrade this summer and has announced plans to sell its money-losing health plan business.
CHI's debt-to-equity ratio has skyrocketed in recent years. At about 50% in 2011, it zoomed to nearly 100% in 2013 and on to 110% in 2015.
In July, Fitch Ratings lowered the credit rating of CHI by three notches, citing the integrated health system's weaker financial profile, while A.M. Best Co. downgraded CHI's health insurance subsidiary.
CHI posted a net loss of $568.1 million in the first nine months of its fiscal 2016, which began July 1, 2015. Health IT costs, investment losses and troubles with its health insurance company spearheaded the massive deficit. CHI's credit rating from Fitch, which covers $6 billion of outstanding debt, now sits at BBB+ from A+. That loss was a substantial deterioration from its fiscal 2015. For all of 2015, CHI eked out a $3.1 million gain on operations on revenue of $15.2 billion.
CHI spokesman Mike Romano said talks were preliminary and he declined to discuss possible options under an alignment.
San Francisco-based Dignity Health operates in 22 states with 9,000 physicians, 62,000 employees and 400 care centers.
The Precision Medicine Alliance will initially focus on advanced diagnostic tumor profiling in cancer patients, but will eventually expand to treating other areas of cancer and cardiac illnesses, according to a news release. The program will also build a collection of clinical cancer data that can be used to better diagnosis and treat patients. The systems will integrate patient electronic health records in order to build the database.
Lofton and Dignity CEO Lloyd Dean are perennially on Modern Healthcare's list of Top 100 Most Influential Healthcare Leaders.
In the release Monday, Dean said the two systems are looking to align during a time of rapid change in healthcare.
“Through a stronger strategic and financial foundation, an aligned ministry would accelerate our ability to advance our healing mission into the future,” Dean said.
Both systems operate Catholic and non-Catholic hospitals and delivery hubs.
Dignity has 39 hospitals. It is the nation's sixth-largest not-for-profit health system. It posted an operating loss of $63.4 million on revenue of $12.4 billion in its 2016 fiscal year ended June 30.