San Francisco-based Dignity Health has begun negotiations with an academic medical center in the Bay Area, even as it proceeds with merger talks with Catholic Health Initiatives.
During an call with analysts about its latest financial results, Dignity Chief Financial Officer Daniel Morissette said the system is pursuing a possible joint venture with an as-yet unnamed academic medical center because it would benefit Dignity's four hospitals in the Bay Area by having a teaching hospital behind them.
Morissette cautioned that talks were very preliminary and confidentiality provisions in a nonbinding letter-of-intent prohibited him from naming the prospect.
He said two of Dignity's hospitals in the area were operating profitably today and two were “challenged.” With an academic medical center on board, the hospitals would be part of a bigger provider network to seek contracts and improve performance, he said.
Dignity's financial results swung dramatically back into the black in the three months ended Sept. 30, the first quarter of its fiscal 2017.
The 39-hospital not-for-profit system posted operating income of $30.8 million on revenue of $3.25 billion in the quarter, compared with an operating loss of $47.5 million on revenue of $3.08 billion in the year-earlier quarter.
A systemwide performance improvement plan to increase volumes and reduce costs is gaining traction, Morrissette said, particularly with staff productivity gains and physician recruitment.
For its fiscal 2016, ended June 30, Dignity posted an operating loss of $63.4 million on $12.6 billion in revenue.
Morissette said Dignity remains optimistic about its talks with CHI, a 103-hospital not-for-profit system based in Englewood, Colo.
A letter-of-intent to pursue an affiliation was signed in October.
Morrissette said the geography between the systems is complementary, with CHI's hospitals in 18 states where Dignity isn't. Dignity has hospitals in California, Arizona and Nevada.
He added that CHI is strong in some clinical areas that Dignity wants to strengthen, particularly senior care and home care. Dignity, meanwhile, has business practices and joint ventures with for-profits that would help CHI add scale in its markets, he said.
Due diligence is ongoing with a target of early in 2017 for the parties to determine if they want to enter a definitive agreement.