Why Dig­nity wants Health­works

Dig­nity’s play for U.S. Health­works il­lus­trates push for in­te­grated care

Modern Healthcare - - FRONT PAGE - Ashok Sel­vam

Dig­nity Health wants to make a bold move into the am­bu­la­to­rycare world with the pur­chase of the oc­cu­pa­tional medicine and ur­gent-care cen­ters of U.S. Health­Works. The an­nounce­ment came three days af­ter the U.S. Supreme Court up­held most of the Pa­tient Pro­tec­tion and Af­ford­able Care Act. Of­fi­cials said the tim­ing was mere co­in­ci­dence. “We, in fact, signed it be­fore that happened,” said Dig­nity Chief Fi­nan­cial Of­fi­cer Michael Blaszyk. “I do think the court’s ac­tions were ic­ing on the cake.”

Ob­servers say the broad changes in health­care de­liv­ery and pay­ment en­cour­aged by the law drove Dig­nity’s de­sire to pur­chase the 172 med­i­cal cen­ters of Va­len­cia, Calif.-based U.S. Health­Works.

The un­usual deal, ex­pected to close in Au­gust, comes amid sev­eral other odd pair­ings an­nounced re­cently as play­ers across health­care sec­tors vie to keep ahead of the in­dus­try’s charge toward in­te­grated and co­or­di­nated care un­der emerg­ing pay­ment mod­els in the re­form law and with pri­vate pay­ers.

Last month, for ex­am­ple, re­nal-care provider DaVita said it would pay $4.42 bil­lion in cash and stock for Health­Care Part­ners, a pri­vately held op­er­a­tor of med­i­cal groups and physi­cian net­works in Southern Cal­i­for­nia, cen­tral Florida and Las Ve­gas (May 28, p. 6). A di­vi­sion of Unit­edHealth Group last year bought Monarch Health­Care, a large in­de­pen­dent physi­cian group based in Irvine, Calif., and Pennsylvania in­surer High­mark has agree­ments to ac­quire Pittsburgh-based West Penn Al­legheny Health Sys­tem and an in­de­pen­dent hos­pi­tal south of Pittsburgh.

U.S. Health­Works touts it­self as the coun­try’s largest in­de­pen­dent op­er­a­tor of oc­cu­pa­tional and ur­gent-care cen­ters in the coun­try, with about 2,700 em­ploy­ees across 15 states. Blaszyk said U.S. Health­Works cleared $375 mil­lion to $400 mil­lion in or­ga­ni­za­tional rev- enue last year.

The deal would give San Fran­cisco-based Dig­nity a pres­ence in 16 states, con­sis­tent with the or­ga­ni­za­tion’s goals of be­com­ing a na­tional de­liv­ery net­work by 2020 and ex­pand­ing toward the At­lantic. Dig­nity now has 37 hos­pi­tals in three states—last week, the sys­tem sold St. Mary’s Re­gional Med­i­cal Cen­ter in Reno, Nev., to Prime Health­care Ser­vices. Dig­nity has a pend­ing agree­ment to buy Ash­land (Ore.) Com­mu­nity Hos­pi­tal, which the par­ties ex­pect to close in Au­gust.

Blaszyk said ne­go­ti­a­tions with U.S. Health­Works be­gan in April, and Dig­nity fended off com­pe­ti­tion from a bevy of pri­vate-eq­uity firms be­fore reach­ing the agree­ment. Nei­ther side dis­closed fi­nan­cial de­tails of the trans­ac­tion.

“We were over­whelmed by in­ter­est; you should know that U.S. Health­Works was hotly pur­sued,” said Daniel Crow­ley, the com­pany’s pres­i­dent and CEO.

Crow­ley said there were more than 20

par­ties in­ter­ested in pur­chas­ing the com­pany. Com­bin­ing with Dig­nity gives U.S. Health­Works a chance to grow its brand and ex­pand to new re­gions, Crow­ley added. He will con­tinue in his role as pres­i­dent and CEO with U.S. Health­Works, which will func­tion as a wholly-owned sub­sidiary of Dig­nity. Dig­nity says it also will of­fer em­ploy­ment to U.S. Health­Works work­ers af­ter the pur­chase be­comes of­fi­cial.

The trans­ac­tion serves as a unique op­por­tu­nity for Dig­nity to ex­pand, Blaszyk said. There’s also lit­tle chance for this type of deal to be du­pli­cated, as there aren’t many na­tional chains like U.S. Health­Works, said Lou Ellen Hor­witz, ex­ec­u­tive direc­tor for the Chicago-based Ur­gent Care As­so­ci­a­tion of Amer­ica. She was caught off-guard by the deal and said this was the first time a re­gional health sys­tem had pur­chased a na­tional chain of ur­gent-care cen­ters.

“Maybe Dig­nity was look­ing for a foot to ex­pand and this was the only foot avail­able,” Hor­witz said. She also com­pared the deal to 2010 when in­surer Hu­mana spent $790 mil­lion to pur­chase Con­cen­tra and its 548 clin­ics in 42 states: “It’s part of a larger strate­gic plan for the pur­chas­ing or­ga­ni­za­tion,” she said. “It’s not nec­es­sar­ily be­cause they want to grow the ur­gent-care busi­ness.”

Hor­witz also said the addition of the U.S. Health­Works fa­cil­i­ties could serve Dig­nity well as the Af­ford­able Care Act yields mil­lions of newly in­sured pa­tients with a short­age of pri­mary-care providers in many com­mu­ni­ties. Those pa­tients are go­ing to need a place to find care, Hor­witz said, and “the only log­i­cal places are go­ing to be ur­gent-care cen­ters.”

Lisa Gold­stein, an as­so­ciate manag­ing direc­tor for health prac­tices at Moody’s In­vestors Ser­vice, equated the deal with the form­ing of an ac­count­able care or­ga­ni­za­tion or non­tra­di­tional part­ner­ships of pay­ers and providers col­lab­o­rat­ing to re­duce costs.

What’s un­tra­di­tional now, though, may be­come the new norm for the in­dus­try, Gold­stein said. “We see it as indica­tive of the new type of part­ner­ships that we are see­ing now driven by the need to grow in scale and the need to ex­pand out­pa­tient or am­bu­la­tory care.”

Blaszyk echoed that as­sess­ment. “That’s what this na­tional health re­form is about, that’s what we’re about and we think this moves us down the road to this jour­ney,” he said.

Ear­lier this year, Dig­nity changed names from Catholic Health­care West and sev­ered for­mal ties from the Ro­man Catholic Church. The re­struc­tur­ing was in­tended to make the sys­tem more nim­ble, and it did, Blaszyk said.

The changes sped up the board ap­proval process and al­lowed Dig­nity to com­pete with the other in­ter­ested par­ties even though Dig­nity showed in­ter­est about a month af­ter U.S. Health­Works was on the mar­ket, Blaszyk said. “We rose to the task and were able to keep pace with the game.”

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