Misgivings About Leadership Plague OHSU as It Pursues Takeover of Legacy Health

Buying a big rival and facing President Biden’s FTC will test Danny Jacobs.

The OHSU tram at South Waterfront. (Christine Dong)

Oregon Health & Science University, the medical behemoth that aims to take over rival Legacy Health, recently polled 19,369 employees about their jobs. More than 7,000 responded.

One of the questions: Would you stay at OHSU if offered a position similar to yours at a different hospital? Just 54% said definitively that they would, according to results of the internal survey obtained exclusively by WW. Worse yet, just 44% said they had confidence in “senior management’s leadership.” About a third were neutral on that question, and another third had “unfavorable” opinions.

The poll is the latest sign that things aren’t hunky dory on Pill Hill. OHSU acknowledges the results of the survey, citing “unprecedented challenges for the last three years.”

But there’s more. In April, the Portland Business Journal reported that 27 department chairs at the OHSU School of Medicine took an informal poll, asking if they thought the university’s board of directors should reappoint president Dr. Danny Jacobs, 69, a surgeon with two degrees from Harvard University who grew up in rural Arkansas. Twenty-six of the 27 said no, according to the Business Journal.

Together, the two polls show that OHSU is heading into a monstrous purchase, to be made with millions in new debt, with a team that isn’t exactly on board. Not all the wood is behind the arrowhead, as the saying goes, raising questions about whether OHSU is equipped to absorb Legacy’s 14,000 workers and become the Portland metropolitan area’s biggest employer, with some 32,000 doctors, nurses and other staff, 10 hospitals, and 3 million patient visits a year.

Jacobs will prove those doubters wrong—if he can guide the deal through a regulatory maze that includes the Oregon Health Authority, the Oregon Department of Justice, and the Federal Trade Commission.

FTC approval could be the biggest hurdle, experts say. Under President Joe Biden, the commission has become more aggressive than it’s been in years, opposing health care deals that agency leaders think will kill off jobs or raise medical prices for consumers.

Care New England and Lifespan Health System, both based in Providence, R.I., abandoned their plans to merge last year after the FTC opposed the “anti-competitive” deal, saying it would lead to higher prices and a lower quality of care for Rhode Islanders. The commission is challenging another deal in Louisiana that had the state’s blessing, escalating its health care cage fight.

“The FTC will be very interested in this particular merger” between OHSU and Legacy, says Douglas Ross, a professor at the University of Washington School of Law who worked in the DOJ’s Antitrust Division before working in private practice on health care deals. “Under current leadership, the FTC is extraordinarily aggressive, far more aggressive than under Barack Obama.”

It’s a tough time to be a hospital system. During the pandemic, surgeons couldn’t perform as many high-priced procedures that boost profit margins. Emergency rooms were flooded with uninsured patients seeking expensive, lifesaving care. And hospitals had to pay higher wages to attract traveling nurses after permanent staff quit, fed up with pandemic mayhem.

Legacy, for one, lost $172 million from operations in the fiscal year that ended March 31, on revenue of $2.6 billion. OHSU, which is one and a half times bigger, fared better. It lost $90 million on revenue of about $4 billion.

The difference has led to speculation that Legacy sought a deal with OHSU in order to survive. On Wall Street, distressed companies often become prey, and hospitals are no different.

In a blog post titled “OHSU: Savior or Privateer?” (complete with pirate ship graphic), lobbyist Rick Metsger, a former Oregon state senator and onetime chairman of the National Credit Union Administration, said Legacy has been trying to cut costs by selling assets and closing facilities, “but the latter has been met with intense political pushback from local and state legislators.”

A deal that’s good for Legacy may not be good for the state, Metsger writes. “State and national hospital associations always tout these consolidations as improving the quality of care and reducing costs. But recent studies by Rand and Harvard have concluded that most hospital mergers fail to improve quality and actually increase costs.”

Indeed, when it comes to cost control, OHSU is an Oregon laggard. In 2019, the Legislature started the (very literally named) Sustainable Health Care Cost Growth Target Program, setting an annual target to slow growth in health care spending. For 2021 to 2025, that target is 3.4% or less.

For patients with private insurance, OHSU’s costs rose 21.1% from 2020 to 2021, compared with 10.2% for Kaiser Permanente and 9% for Providence Health & Services. For patients using Medicare Advantage, OHSU showed growth of 8.3%, compared with 3.4% for Kaiser and 6.8% for Providence.

“OHSU serves the most complex cases referred from throughout Oregon, which require the most sophisticated, multidisciplinary and often costly treatment,” a university spokeswoman says. “OHSU’s higher share of ‘outlier’ cases makes direct comparison with other health systems challenging.”

Metsger also frets about what happens if the deal doesn’t work. OHSU, once owned and operated by the state of Oregon, has been a “public corporation” since 1995. It’s independent, but it still has close ties to the state. It got $129 million from the taxpayer-supported general fund in the 2021-23 biennium. Its workers are part of the Oregon Public Employee Retirement System.

“At the end of the day, the backstop for OHSU is the taxpayer,” Metsger tells WW. “What if they come a year or two from now and say, ‘Wow, this costs a lot more money. In order to keep people in health care, we need X, Y and Z’?”

Success depends on OHSU’s Jacobs. He’s going to need all of his skills to pull off what would likely be the biggest deal in Oregon health care history.

His employees aren’t the only skeptics. Doubts about Jacobs lingered at an OHSU board meeting April 19, when chair Wayne Monfries, a former Nike executive, asked for sole authority to negotiate a new contract with Jacobs after his old one expires in June 2024. Jacobs became president in 2018, and Monfries wanted to extend his contract for up to two more years, through June 2026.

Board vice chair Ruth Beyer said the process seemed “rushed” because Jacobs had almost a year left on his contract, plenty of time to deliberate. Board member Steve Zika agreed.

“Since this resolution came on the agenda, I’ve gotten more feedback in the last three days than I have in my four years” on the board, Zika said at the meeting. “And the feedback is that it’s too long. I take that seriously.”

Monfries said the board had to reappoint Jacobs now because “we have a lot of things coming up” and “the show of stable leadership is important.” He also assured the board that he’d been in touch with board members individually and that “everyone feels very comfortable with this.”

In the end, the board voted 6-2, with Beyer and Zika dissenting, to grant Monfries the power to negotiate a new contract with Jacobs. He explained to board members that he didn’t have to bring the contract back to them unless it extended beyond two years.

Four months later, on Aug. 16, The Oregonian broke the news, citing unnamed sources, that OHSU and Legacy would “join forces.” It was an inauspicious start to the process that surprised OHSU’s own employees.

“We planned to share this announcement tomorrow with all of you as part of our coordinated efforts to announce this significant milestone,” the university told employees. “We apologize for any additional stress or anxiety this accelerated timeline has caused.”

OHSU said it had signed a “non-binding letter of intent to combine and create a comprehensive, integrated health system that will offer high-quality, essential health care services to patients.”

The bungled announcement was the easy part, and it’s likely things will get harder. Given its track record, Biden’s FTC will look at such claims closely.

Willamette Week’s reporting has concrete impacts that change laws, force action from civic leaders, and drive compromised politicians from public office. Support WW's journalism today.