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(This story has been updated as of 3:00 pm.)
Oregon Health & Science University terminated its plan to purchase Legacy Health, ending a contentious 20-month effort to combine two struggling health care systems into one that could weather a brutal financial environment for Oregon hospitals.
“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 interim president Steve Stadum and board chair Chad Paulson said in an email to staff this morning.
Around the same time, Legacy chief executive George Brown told his staff that the two health systems had “reached a mutual decision to terminate the proposed combination.”
Shortly after, OHSU issued a terse statement saying the transaction was off. Neither party is paying a termination fee, an OHSU spokeswoman said.
The deal was star-crossed from the beginning, with both organizations struggling to pay higher salaries demanded by nurses, especially, in the wake of the COVID-19 pandemic. Costs for medical supplies also rose, leaving both OHSU and Legacy with losses.
WW reported extensively on the obstacles the merger faced in a cover story last month.
In a filing with Oregon’s Health Care Market Oversight unit, OHSU and Legacy said that a combination would remedy both of their financial predicaments because it would give “both parties what they desperately need.” Legacy would get a $1 billion cash infusion from OHSU, and an overcrowded OHSU would get access to empty beds at Legacy.
“These benefits are mutually supporting, as better utilizing Legacy Health’s excess capacity will both improve access and support the integrated health system‘s financial position to enable even greater investment across the combined system,” they said.
A community review board convened by Oregon’s new Health Care Market Oversight (HCMO) unit, one of just two regulators with power to block the deal, recommended that HCMO reject the combination because it would likely lead to higher costs for patients. Many studies show that mergers concentrate market power and drive up prices.
The community review board, made up of volunteers, had no authority to block OHSU’s purchase, but HCMO is required by law to consider its decision.
“A lot of credit goes to OHSU and Legacy for reconsidering the acquisition and for acknowledging that this deal was not in the best interest of Oregonians,” said Hayden Rooke-Ley, an Oregon-based attorney and fellow at the Brown University School of Public Health in Providence, R.I. “It’s also a big win for the HCMO program. This acquisition would have gone through, and gone through more expeditiously, without HCMO.”
Because of OHSU’s public-private status as a “public corporation,” it is out of reach from both federal and state anti-trust regulators. Only HCMO and the charitable activities section of the Oregon Department of Justice had authority to review its purchase of Legacy.
Rooke-Ley had submitted public comment to HCMO during its review, arguing that the combination would create a hospital system with too much power in the Portland market.
OHSU had argued that its service area was the whole state of Oregon, negating antitrust issues, and that without the deal, Legacy would get picked off by a private equity firm or out-of-state hospital chain that would rank cost-cutting above patient care.
Rooke-Ley says that argument was overblown because any other suitor for Legacy would have to go through the rigorous HCMO process, too.
To be sure, Rooke-Ley says, the state’s 60 hospitals are in rough shape. Most of them lost money last year, according to a recent report by the Hospital Association of Oregon, hurt by rising costs in a state where about one-third of residents get their health insurance through the Oregon Health Plan, the state’s Medicaid program.
“This was never going to be the solution, but a solution is needed,” Rooke-Ley says.
The unions that represent workers at OHSU and Legacy were quick to lament the deal’s demise. The three largest unions issued statements shortly after the news broke. All had been supporting the merger because OHSU, a union-friendly system, would have been taking control of Legacy, which, they said, had a poor history of labor relations.
To win union support, OHSU promised that no unionized workers would lose their jobs for 12 months after the deal closed. Non-union workers got only a six-month guarantee.
The Oregon Nurses Association, which represents about 5,000 nurses at OHSU and 3,300 at Legacy, said in a statement that it had supported the merger throughout the approval process because “we believed it would lead to better working conditions for frontline caregivers and high standards for patient care.”
The Oregon chapter of the American Federation of State, County, and Municipal Employees, long active at OHSU, where it represents 12,000 workers, won 300 members at Legacy during the merger process, which are negotiating their first contract.
“The merger’s termination will not affect our determination to bargain fair contracts for Legacy workers or support them in organizing new unions with Oregon AFSCME,” the union said in a statement.
Service Employees International Union Local 49, which represents 1,200 Legacy workers, weighed in on the matter, too.
“We are disappointed that the OHSU-Legacy Health transaction will not proceed,” the union said. “SEIU members are committed to quality, affordable healthcare for all people that is delivered by valued employees in high-quality jobs.”
OHSU’s position as a savior for Legacy has deteriorated recently as the Trump administration seeks to slash funding for the National Institutes of Health, which provides about $300 million a year to OHSU researchers. It also faces cutbacks at the Oregon National Primate Research Center, a lightning rod for animal rights groups that collects about $56 million from the NIH every year.
Two groups, People for the the Ethical Treatment of Animals and the Physicians Committee for Ethical Medicine, have stepped up pressure on OHSU to close the primate center, running television- and radio ads in the Portland market.
They’ve been writing to regulators, too, arguing that its closure should be a condition for approval of the Legacy purchase. Gov. Tina Kotek handed them a victory last month when a spokeswoman told WW, in response to a question, that OHSU “should figure out how to close its primate research center.”
