CHI-Dignity merger cleared by Vatican

(Updated at 7:10 p.m. ET)

The Vatican has given the ecclesiastical green light to the proposed merger of Catholic Health Initiatives and Dignity Health, a deal that would create the nation's largest not-for-profit hospital company by revenue.

In a Sept. 4, 2018 letter, the Vatican's Congregation for the Doctrine of the Faith said it had reviewed the agreement between the two not-for-profit hospital systems and would allow the bishops in the local dioceses where the newly formed entities will exist to decide the matter.

Then, in a letter dated Oct. 5, 2018, Denver Archbishop Samuel Aquila informed CHI that as long as his five moral conditions for the deal continue to be met, he had no moral objections to the merger going forward.

"Archbishop Aquila is saying nothing stands in the way," archdiocese spokesman Mark Haas said Tuesday, translating the Latin phrase nihil obstat.

While the archbishops of Denver and San Francisco, where CHI and Dignity, respectively, are headquartered, previously had signed off on the so-called ministry alignment agreement, their approval was dependent on Vatican approval, which was uncertain. That left a cloud over the plan, initially announced in 2016, to create a combined system with 139 hospitals in 28 states with total annual revenue of nearly $30 billion.

The merger proposal received an unfavorable moral analysis last summer from John Haas, president of the National Catholic Bioethics Center, which added to the uncertainty about the Vatican's decision. CHI and Dignity then sought additional moral analyses from three other ethicists, who gave favorable opinions.

The merger still needs approval from state regulators in California, Arizona and Colorado, CHI's chief financial officer, Dean Swindle, said on an Oct. 11 call with investors.

CHI and Dignity announced Tuesday that their boards had selected members of the governing board that will oversee the joint health system, which hasn't yet been named, once the merger closes.

The boards recommended the joint board be chaired by Tessie Guillermo, the current chair of Dignity's board of directors. CHI's current board chair, Chris Lowney, was selected to serve as vice chair of the joint board. The recommendations will be approved by the joint board, which will have six board members from each health system board, at its first meeting.

North Dakota's attorney general has already reviewed the merger, and the Colorado attorney general's review process is underway, Swindle said. Arizona regulators will also likely hold a public hearing.

California's review process has been by far the most rigorous. Swindle said the health systems filed their alignment agreement with Attorney General Xavier Becerra's office in March, and have since completed a series of 17 public meetings.

"We are confident we have satisfied all requirements for review and approval," Swindle said.

But a coalition of advocacy groups are pressing Becerra to ensure that the deal does not limit reproductive health services, care for LGBTQ patients, or services for low-income and underserved communities.

"We urge the attorney general to ensure that if he approves any change in control and governance of DH and CHI, that approval is accompanied by robust and enforceable conditions that protect the community interests," the groups recently wrote.

A major concern for the advocacy groups is that the massive new system will be governed by the Ethical and Religious Directives for Catholic Health Care Services. But 15 of Dignity's 39 hospitals are historically non-Catholic and provide services that are prohibited under Catholic doctrine, forcing the dealmakers to craft a merger model that worked around the directives.

Under the merger's complicated structure, all but one of Dignity's non-Catholic hospitals, including seven in California, would be placed in a separate Colorado-based not-for-profit corporation and allowed to continue performing medical services such as post-delivery tubal ligations that are deemed immoral by the church and that violate the directives.

Haas, who last year issued a negative moral evaluation of the deal, said Tuesday that the Vatican's Sept. 4 letter indicated that Rome was leaving the decision up to the U.S. prelates because it was a complex corporate deal that was beyond its competence to judge.

"The Congregation for the Doctrine of the Faith usually deals with rather clear-cut moral and dogmatic issues, like the person of Jesus Christ," he said. "They don't have corporate attorneys sitting on the congregation. They were saying, 'This is beyond us.' "

The conditions that Archbishop Aquila placed on approving the deal include that the name of the new system be recognizably Catholic and that the system's leaders consult with ecclesiastical authorities to make sure the church's Ethical and Religious Directives continue to be followed.

Since 1993, Dignity's non-Catholic hospitals, which had joined Dignity's predecessor system, Catholic Healthcare West, have operated under a "statement of common values," while Dignity's historically Catholic hospitals operate under the more restrictive Ethical and Religious Directives.

Under the statement of common values, Dignity's non-Catholic hospitals have continued to provide reproductive healthcare services forbidden by Catholic doctrine, such as post-delivery tubal ligations, vasectomies and contraception. The non-Catholic hospitals are not allowed, however, to perform abortions or in-vitro fertilization or participate in California's physician aid-in-dying law.

The bifurcated religious rules would continue under the merger, which prompted doubts about whether the Vatican would approve the deal. Those services would continue despite a newly approved section of the Ethical and Religious Directives strengthening language requiring local bishops to assess whether partnerships with non-Catholic organizations involve improper "cooperation in actions that are intrinsically immoral," including "direct sterilization."

The merger agreement states that CHI or Dignity may terminate the agreement if it hasn't closed by Dec. 5, a year after it was signed.

"We remain focused on working with all the relevant parties to achieve a successful closing," Swindle said. "The alignment is anticipated to close this year. Until then, both organizations will continue to focus on their operational performance and preparing for our successful integration."