This article has been expanded to include additional reporting
The merger is off.
OHSU and Legacy Health said Monday morning they have mutually agreed to “move forward as individual organizations,” rather than with OHSU purchasing and absorbing Legacy to become an even bigger health care player in the state.
Billed as a move to improve care and efficiency, the plan to combine the hospital organizations encountered headwinds from observers and experts who questioned the benefits and warned of higher costs for consumers and local businesses. Then, last week, OHSU announced its nine-month financial results, which included an operating loss of about $71 million for the previous nine months.
That poor financial news tended to undermine OHSU's premise for the deal in its 2023 application to the Oregon Health Authority, in which the university appeared to gloss over its own financial weaknesses and portray Legacy as in dire straits.
OHSU and Legacy Health announced the news simultaneously Monday morning: “After careful consideration of the evolving operating environment, the organizations have determined that the best way to meet the needs of the communities they serve is to move forward as individual organizations. OHSU and Legacy will remain focused on each health system’s individual strategic objectives, with the goal of remaining well-positioned to continue supporting their people, patients and communities.”
OHSU's difficulties extend far beyond its operating results: Executives warned two weeks ago that the curtailing of federal research grants endangers OHSU's ability to conduct medical research, a core mission.
“Will research survive at OHSU? I personally don’t think it’s going to survive in its present state,” said Peter Barr-Gillespie, OHSU’s chief research officer told an audience at the organization's board meeting late last month. “I look at all these threats … Each of them would be devastating, and together it could be a real problem.”
OHSU's interim president, Steve Stadum, is leading an internal effort to manage the response to the funding cuts. External officials, led by Oregon Senators Ron Wyden, Jeff Merkley and Rep. Suzanne Bonamici, have also decried the research cuts.
Critics hail decision
Hayden Rooke-Ley, an Oregon-based attorney and senior fellow at the Brown University School of Public Health, had co-authored an analysis recommending against the deal while suggesting the Legislature to do more to help ailing hospitals.
“Kudos to OHSU and Legacy for reconsidering this and acknowledging that this association was probably not in the best interest of Oregonians," he told The Lund Report. He credited the Oregon Health Authority office that oversaw the merger review for providing a forum that allowed the public to examine the deal's specifics.
But, he added, “none of this fixes Oregon's dire systemic problems of affordability, of access and of corporate control of our health care system." He called for “bold action from state lawmakers and state health policy leaders.”
John Santa, a former Oregon health official, insurance executive and health care activist, had called for better OHSU oversight if the deal went through. He said he hopes OHSU and Legacy “learn from this process and fully engage the public around other strategies. I especially worry about access problems at Legacy. Hopefully the state also learns more about other strategies to respond to such transactions.”
Nurses union leadership disappointed
Oregon Nurses Association leadership said in an announcement Monday that it supported the deal because, “we believed it would lead to better working conditions for frontline caregivers and high standards for patient care.”
The statement said the union is “disappointed” by the decision to scrap the merger, but added, “this will not impact ONA’s ongoing work to organize frontline caregivers and fight for fair contracts that prioritize workers and patients over profits.”
The nurses union was looking forward to bringing more nurses into OHSU's unionized workforce, which earned market-leading wages. Oregon Health & Science University leaders had enlisted union backing by promising union members protections against initial layoffs while offering commitments of equal pay and training as well as facility upgrades that they said would improve care at Legacy Health hospitals.
Local 49 of the Service Employees International Union (SEIU) also said Monday it is “disappointed that the OHSU-Legacy Health transaction will not proceed.”
Opposition to the merger had been growing
Before the OHSU board meeting, the most recent sign of trouble for the merger was the unanimous recommendation of an Oregon Health Authority community advisory board against approving the merger.
“Ultimately, this is too big, with too many risks, for us to put enough regulators on,” a member of the committee, Wendi Martin, a human resources executive, said last month, explaining her vote against the proposal.
Influential former Gov. John Kitzhaber, currently working with Oregon Rep. Cliff Bentz, a Republican, on a national Medicaid proposal, also criticized OHSU's proposal to make Legacy Health its subsidiary.
“There has been no clear articulation of why this transaction will be in the public interest,” he wrote in his blog.
Both organizations face financial challenges
At its board meeting and in a statement to The Lund Report a few days later, OHSU announced a range of cost-saving initiatives it was undertaking to address continuing losses.
Asked whether OHSU leadership had considered pulling the plug on the merger in light of the changed finances, an OHSU spokesperson did not respond to the question, instead sending a statement saying that OHSU was taking steps to cut costs that “are necessary regardless of whether the Legacy Health integration is approved.”
Legacy Health, too, is losing money, but S&P Global issued a report April 11 giving the hospital system an “A” rating and saying its outlook is “stable.”
“Legacy's balance sheet is good for the rating, aided by increasing reserves, moderate debt to capitalization, low debt burden, and a fully funded defined-benefit pension plan, but operations remain challenged with a continuation of underlying losses. Unrestricted reserves increased notably from fiscal year-end 2023, supported largely through asset sales, and resulted in increases in days’ cash on hand (DCOH), reserves to long-term debt, and reserves to contingent debt,” S&P Global reported.
Legacy CEO cites progress, plans employee meetings
What follows is an email Legacy CEO George Brown sent an email to employees and providers at 10 a.m. Monday:
Dear Legacy Colleagues,
I want to share an important update that Legacy and OHSU have reached a mutual decision to terminate the proposed combination of our two organizations.
In August 2023, OHSU and Legacy announced their intent to combine and create an integrated health system. After careful consideration of the evolving operating environment, we have determined that the best way to meet the needs of our communities and you – our people – is to move forward as individual organizations.
At this time our priority is working to ensure you understand our path forward, and that our patients and communities know we remain committed to improving health outcomes across Oregon and Southwest Washington.
As you know, we have faced significant financial challenges over the past several years—and we continue to do so today. However, we have made progress and will keep working together to strengthen our financial position and continue delivering high-quality care for generations to come.
We have town halls scheduled at each site beginning the week of May 19. I encourage you to attend one of these sessions to hear directly from our leadership team and ask questions. If you are unable to participate, we will continue to use our existing communication channels and huddle structures to provide updates on this and other organizational priorities.
We anticipate this news will likely result in media coverage. As a reminder, if you are contacted by the media, please refer them to our PR team at [email protected].
I know change and uncertainty can be difficult. Throughout this process, you have shown remarkable commitment to our patients and to one another. I deeply appreciate your dedication to the work we do every day, and I am honored to lead this organization.
Sincerely,
George
