The Oregon Health and Science University will partner with Legacy Health in a deal to reshape the Portland healthcare market, people familiar with the matter said.
On Wednesday, four sources close to two health care systems told The Oregonian/OregonLive about the impending deal.
Many of the details of the deal are unknown. Neither Legacy nor OHSU officials initially commented. Late Wednesday, OHSU issued a press release confirming the deal.
“OHSU has a decades-long relationship with Legacy Health, united by a shared commitment to improving the health and well-being of people in Oregon and beyond,” said OHSU President Danny Jacobs, MD. MPH, FACS said. “Together, we now have an opportunity to take the next decisive step in fulfilling our promise to ensure the best access and care for all who need us now and in the future. I got it.”
“The letters of intent, the first step in the transaction process for Legacy to become part of OHSU, have been unanimously approved by the Boards of Directors of both OHSU and Legacy,” OHSU reported.
A person close to the deal said OHSU would be the surviving company. The company reportedly invested $1 billion in the combined entity over 10 years.
The fate of the various legacy hospitals under OHSU jurisdiction is uncertain as there are no obvious geographic conflicts between their respective systems.
Legacy, Portland’s largest hospital chain, is in trouble and has recently sparked speculation that management may seek a merger or acquisition.
Legacy, which owns and operates seven hospitals in metropolitan areas, posted a devastating loss of $172 million in fiscal 2023. This drained the company’s capital and raised questions about its future viability as an independent business.
OHSU operates a hospital, clinic, medical college and dental school complex. As a public corporation partially funded by the state, OHSU has a financial cushion that other local hospital operators do not have. Despite this, it posted an adjusted operating loss of $90 million in fiscal 2022.
OHSU has annual operating revenues of approximately $4 billion, larger than Legacy, which earned $2.5 billion in fiscal 2023.
OHSU employs approximately 18,000 people. Legacy has about 13,000 units.
The deal is subject to regulatory approval. One of the issues they look at is market share and whether the combined company could violate antitrust laws.
Oregon Health Department spokeswoman Amy Butcher arrived late Wednesday and said she had not heard of the deal.
The metropolitan area is home to five large healthcare systems: Kaiser Permanente, PeaceHealth, Providence Health and Services, OHSU, and Legacy. The big five families have been battling it out for market share, buying other hospitals and forming partnerships with health insurers in what has been called the altercation.
OHSU partnered with Hillsboro’s Tuality Healthcare system in 2016. It also partnered with Moda, a Portland insurer. Legacy merged with PacificSource, Moda’s main competitor, in 2016.
The pandemic has created a very difficult situation for all of Portland’s hospitals and healthcare system. Forced to send out expensive nurses, business outside of COVID-19 plummeted along with employee morale.
Legacy alienated many of its employees when it announced it was closing the birthing center at Legacy Mount Hood Medical Center. State regulators were also unsatisfied with the move, arguing Legacy was not seeking the necessary state approval.
Nurses at Legacy Mount Hood voted overwhelmingly to unionize after clashes at the midwifery center.
Recently, a security guard at Legacy Good Samaritan Hospital in northwest Portland was shot dead by a disgruntled visitor to the hospital. A nurse was hit by debris and suffered minor injuries.
The incident sparked dissatisfaction among nurses and security guards, who said that Legacy had neglected its security department understaffed and underfunded.
The financial difficulties of Legacy Health, Portland’s largest hospital chain, have severely damaged its capital and liquidity. Legacy’s working capital plummeted by 40% in fiscal 2023. Working capital was $245 million as of March 31, 2023, according to the newly available audited financial report of the nonprofit. The previous year’s figure was $422 million.
Legacy ‘days of cash on hand’, a key indicator of liquidity, fell from 244 to 175 days. Analysts consider 150 days to be a sign of serious danger.
Nonprofits showed signs of improvement in the first quarter of the year. Legacy reported an operating profit of $10.1 million for the quarter, compared with his $46.9 million operating loss in the year-ago quarter.
Legacy announced in July that it had reached a tentative agreement to divest its testing operations in an effort to rebuild the Portland hospital chain’s balance sheet and pull it out of its precipitous financial meltdown.
Laboratory Corporation of America, commonly known as LabCorp, will purchase a portion of Legacy’s laboratory and manage its inpatient laboratories under a long-term contract, Legacy announced.
This is breaking news and will be updated.
— Jeff Manning; firstname.lastname@example.org