Officials from the Southern California health system Hoag filed a lawsuit against Providence to separate its two hospitals from Providence, a large Catholic health system based in Renton, Wash.
Hoag executives claim that the population health initiative driving the 2013 combination with then-St. Joseph Health was never achieved and that their operating philosophies are too different to reconcile. St. Joseph's merger with Providence complicated matters as a centralized governance model allegedly stripped Hoag of local decisionmaking authority.
Around a year of discussions regarding a separation agreement and instituting a more informal arrangement have not been fruitful, said Robert Braithwaite, president and CEO of Hoag. A change in control and operating models aren't prerequisites for successful affiliations, he maintained.
"Our efforts with St. Joseph were focused on creating an Orange County network of care," Braithwaite said. "Providence is really big and has a different lens—there's nothing wrong with that but that dissonance between those two paradigms was part of the challenge, not just in terms of population health but overall operating philosophies."
Providence allegedly failed to disclose the proposed divorce when it went to the bond market in 2019, and asserted that the merger must remain intact because the bond market is relying on Hoag's assets, even though they are exclusively owned by Hoag, according to the complaint. The Catholic Church's Ethical and Religious Directives for Catholic Health Care Services, which ban certain procedures like abortions, conflict with Hoag's Presbyterian-based mission, Hoag executives claim.
Providence said that it is unclear why Hoag took legal action, noting that their merger has grown Hoag's managed care network to more than 2,000 providers, enhanced its IT infrastructure, bolstered mental health and substance abuse treatment, and expanded its orthopedic ambulatory surgery center footprint, among other benefits.
"The Hoag leaders' so-called 'realignment' plan would negatively impact patient care and diminish resources and medical expertise available to Orange County," the 51-hospital system said in a statement.
Braithwaite specifically cited the strides made in orthopedics and mental health, and hopes that the systems can continue a voluntary collaboration.
The population health endeavor was the sole focus of the 2013 merger, Braithwaite noted. The goal was to create a comprehensive network connecting inpatient and outpatient care, home health, skilled nursing and other sectors to serve about 1 million individuals in Orange County. But they were unable to organize all those parts and pieces, and St. Joseph at times had different priorities, he said.
"We are starting to see this counter trend, where organizations that are really dedicated to their communities can find ways to collaborate with big health systems but still remain independent," said Braithwaite, adding that while only several systems are trying to unwind acquisitions currently, it could be the start of a broader trend.
AtlantiCare and Geisinger as well as St. Mary's Healthcare and Ascension are two recent examples of health systems have that are trying to dissolve their mergers. Some doctors have also looked to distance themselves from their hospital employers.
In the first quarter of 2020, hospital merger and acquisition activity was down compared to Q1 2019, with not-for-profit buyers pulling back by about 30%, according to Ponder & Co. data.
While joint ventures and clinical affiliations were typically viewed as a testing ground for formal integration, that dynamic may be changing, M&A experts said.
"Collaboration is good—Orange County can benefit from collaboration," Braithwaite said. "We just don't have to be controlled to do it."
