Dive Brief:
- Oregon Health and Science University and Legacy Health announced plans to combine last week in a deal the health systems said will create the largest employer in the Portland metro area.
- Under the nonbinding letter of intent, Legacy will be absorbed into the state-affiliated academic medical center, creating a system with 10 hospitals and more than 32,000 employees.
- OHSU and Legacy didn’t disclose financial terms of the deal, but said they’re working toward a definitive agreement in the coming months. The merger is expected to close in 2024, subject to regulatory approval.
Dive Insight:
Legacy struggled during the COVID-19 pandemic, with management calling the health system’s position a “financial crisis” as it faced heightened labor expenses and longer lengths of stay. Legacy posted an operating loss of nearly $172 million during its 2023 fiscal year.
The nonprofit attempted to shut down maternity services at one of its hospitals earlier this year, citing a low volume of births and high costs. The Oregon Health Authority denied its request to close the birth center in March.
Last month, Legacy said it had reached an agreement with laboratory services giant Labcorp to sell some assets of its outreach laboratory business.
As part of the merger, OSHU said it would invest about $1 billion over the next decade to support primary and community-based services for the combined health system and expand services, like clinical programs, care sites and care models, as well as add new technology.
In a statement, the Oregon Nurses Association argued OHSU should prioritize nurses over an acquisition, noting the financial commitment came around the same time that nurses declared an impasse in contract negotiations with the academic medical center.
But the professional organization and labor union said the combination could be positive for patients and staff after “significant failures” at Legacy — including the attempted closure of the birth center — over the past few years.
“ONA does not have any faith in Legacy’s management, so a merger with a public institution like OHSU – which will come with more requirements related to transparency and accountability – is likely to be in the best interests of Legacy’s patients and their 13,000 staff members,” the ONA said in a statement.
Hospital and health system dealmaking increased in the second quarter this year, a sign the M&A market is regaining momentum after the pandemic, according to consultancy Kaufman Hall.
But federal antitrust regulators have been cracking down on healthcare M&A, recently withdrawing two policy statements on merger enforcement against hospitals’ wishes and proposing new guidelines that could be used to target vertical and cross-market deals.
Under a new program that went into effect last year, the Oregon Health Authority also reviews mergers, acquisitions and other healthcare business deals.
The Legacy-OSHU deal is a test for the state’s new authority, which allows the regulator to deny deals or attach conditions when it determines consolidation could raise prices or hurt access.
The Milbank Memorial Fund called the review “one of the strongest merger oversight programs” in the U.S.
