Illustration: Lazaro Gamio/Axios
Legacy Health and Oregon Health and Science University (OHSU) this week signed a binding agreement to merge.
Why it matters: The deal combines two of Oregon's largest health care systems under the OHSU Health moniker.
Zoom in: The combined entity will employ some 32,000 people across more than 100 locations, including 12 hospitals, making it the Portland metro area's largest employer per the Portland Business Journal.
- The deal includes the spinoff of a community health care grant-making foundation to receive roughly $350 million — an amount equal to Legacy's cash minus debt and a "negotiated withhold," per a release.
- OHSU will commit about $1 billion over the next decade for regional care infrastructure investments, mostly borrowed through bonds, according to a Q&A document from the health system.
Context: First announced in August 2023, the deal became binding Thursday.
Friction point: The deal is likely to receive scrutiny from both federal and state regulators.
- Oregon's 2021 law on health care mergers — considered one of the toughest of its kind — requires health entities to submit filings showing their deal won't cut crucial services, excessively drive up costs or otherwise go against public interest.
What they're saying: "Investments in capital are financed differently from the way we pay people; we can't borrow to pay wages," per the OHSU Q&A.
Between the lines: Although hospital mergers have increased in frequency in recent years, research suggests that such consolidation has increased health care costs for consumers without boosting the quality of services rendered.
By the numbers: 1,573 U.S. hospitals merged from 1998 to 2017. From 2018 to 2023, 428 merged — a stark increase.
- 53 hospital mergers occurred in 2022 alone, with a handful of such deals representing cross-market transactions connecting health systems in different geographies, according to a Kaufman Hall analysis.
The big picture: U.S. hospitals are staring down severe financial strain after years of battling the COVID-19 pandemic.
- The cost of drugs, supplies and labor has skyrocketed in recent years, per an AHA report, while reimbursement from government payers increases at a glacial pace.
State of play: Hospital consolidation has continued at a steady clip amid pandemic-related cost pressures. Recent deals include:
- West Coast health system Kaiser Permanente agreed last year to acquire Pennsylvania-based hospital operator Geisinger, forming nonprofit venture Risant Health.
- Dallas-based Tenet in April sold six hospitals and related operations in California.
What's next: The two hospital systems expect to submit their application to state regulators in the coming months.
