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December 8, 2017

Dignity, CHI agree to form America's largest nonprofit hospital system

Daily Briefing

    Dignity Health and Catholic Health Initiatives (CHI) on Thursday announced they have signed an agreement to merge—combined the companies would form the largest nonprofit hospital system by operating revenue in the country.

    Get the field guide to hospital partnership and affiliation models

    The merger has been approved by each system's governing board. However, the merger between the two Catholic health systems is still subject to state, federal, and church approval. The deal is expected to close in the second half of 2018, according to a Dignity release.

    About the merger

    If completed, the merged system would encompass 139 hospitals and more than 700 sites of care across 28 states. It would staff about 159,000 employees and 25,000 physicians and other advanced practice clinicians. Overall, the system would have a combined revenue of $28.4 billion.

    If finalized, the merged system would overtake Ascension as the largest nonprofit hospital company in the United States, according to Modern Healthcare, but Kaiser Permanente would remain the largest nonprofit integrated system, at $71 billion in revenue in 2017.

    The combined system would be led by a Board of Stewardship Trustees that would include six members from each organization's current board, as well as with each company's CEO. Under the terms of the merger, Dignity CEO Lloyd Dean and CHI CEO Kevin Lofton would lead the merged system as CEOs. Lofton would head the organization's mission, advocacy, sponsorship and governance, system partnerships, and health IT initiatives. Dean would have authority for clinical, financial, and human resource operations.

    The merged system would establish a corporate headquarters in Chicago. Dignity is based in San Francisco, and CHI is based in Englewood, Colorado, and according to the systems, each organization does not currently overlap across geographic hospital service regions. Local facilities would continue to operate under their current names.

    A shared focus

    According to the Dignity release, the merged system would enable the organization to expand community-based care, broaden clinical programs focused on special populations and individuals with chronic illness, and advance digital technologies that create a more personalized and efficient care experience.

    The Dignity release stated, "The new system will be guided by [the two systems'] shared mission that emphasizes social justice for all people and will work to ensure that those values are part of the local and national health care environment." According to Becker's Hospital Review, the systems together spend about $4.7 billion on "charity care, community benefit, and unpaid cost of government programs, and they will continue to do so once the proposed merger is completed."

    According to the release, the merger builds upon the Precision Medicine Alliance the two systems formed in September 2016. The systems have characterized it as the country's largest community-based precision medicine program.  

    Dean in the Dignity release said, "By combining our ministries and building upon our shared mission, we will expand our commitment to meeting the needs of all people with compassion, regardless of income, ethnicity, or language." He added, "We foresee an incredible opportunity to expand each organization's best practices to respond to the evolving health care environment and deliver high-quality, cost-effective care."

    Lofton in the release said, "We are joining together to create a new Catholic health system, one that is positioned to accelerate the change from sick-care to well-care across the United States" (Rege, Becker's Hospital Review, 12/7; Kacik, Modern Healthcare, 12/7; Jones Sanborn, Healthcare Finance, 12/7; Herman, Axios, 12/7; Dignity release, 12/7).

    There's more than just M&A. Get the cheat sheet for hospital partnership and affiliation models.

    The field guide to hospital partnership and affiliation models

    Behind the flurry of M&A in recent years, a deeper trend of hospital integration is underway: the emergence of alternative partnerships that secure many of the same benefits of M&A without the financial and legal commitment: Clinical affiliation, regional collaborative, accountable care organization, and clinically integrated network.

    This guide defines these types of partnerships and offers benefits, drawbacks, and examples of organizations in each.

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