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Analysis

Providence St. Joseph Exec 'Disappointed' in Hoag Hospital Lawsuit

By Melanie Blackman  
   November 16, 2020

Erik Wexler, chief executive of Providence Southern California, says keeping the affiliation with Hoag is "imperative to advance healthcare" in the communities they jointly serve.

The legal saga between Hoag Memorial Hospital Presbyterian and Providence St. Joseph continues.

In 2012, Hoag, the Orange County-based nonprofit regional healthcare delivery network, joined St. Joseph Health, a nonprofit health system based in Irvine, California. Then in 2016, St. Joseph merged with Providence Health, a nonprofit health system based in Renton, Washington, to create Providence Saint Joseph Health.

In May, Hoag filed a lawsuit to dissolve their affiliation with Providence Saint Joseph. Hoag CEO Robert Braithwaite spoke with HealthLeaders that month about the lawsuit from Hoag's point of view.

Related: Hoag Hospital CEO Explains Lawsuit to Split With Providence Health

A remote demurrer hearing was originally scheduled for Monday to see if there is sufficient evidence to move forward with Hoag's affiliation lawsuit, but it has been rescheduled to February 1 by the court.

Recently, Providence Southern California Chief Executive Erik Wexler spoke with HealthLeaders about his organization’s perspective regarding the lawsuit and why Providence is "disappointed" in Hoag's effort to dissolve the affiliation.

"Hoag is an outstanding institution and has been part of superb population health growth strategies in Orange County, along with Providence St. Joseph Health, for almost a decade," Wexler says. "In these changing and difficult times, and with an imperative to advance healthcare, staying together is, from our point of view, a lot better for our community than potentially separating and having cannibalization and duplication of services."

"It's disappointing," Wexler says. "It just seems mostly like a desire of Hoag to simply just have independence."

Wexler says the organizations' original agreement and the amendments to their affiliation agreement, stated that Providence's relationship with Hoag was meant to be “in perpetuity” unless there was a breach, and at this point, he says the organization does not believe there was one.

The biggest surprise was that the lawsuit was filed in the midst of the COVID-19 pandemic, which has significantly impacted California, Wexler adds.

"As I said, Hoag is a great institution and Providence is a great institution. Both have served this community for almost 100 years and have a history of doing good and staying together to continue to expand that and enhance it,” Wexler says. “It just seems that in the midst of a pandemic, this is the time [to] step back and [ask] "Is this the right thing to do, for two great healthcare institutions to go their separate ways?"

The organizations have a history of working together on population health strategies and invested in mental health services, including Mind OC.

Wexler says he hopes the lawsuit will get resolved “to the satisfaction of both Providence and Hoag, and that we will continue to collaborate together on very important activities."

M&A moving forward

When asked how the experience with Hoag has shaped his view on provider M&A activity, Wexler says he is still optimistic and remains a supporter of “alignment, of mergers and acquisitions, and most certainly collaboration."

He says it's important to keep in mind that all M&A have different characteristics, noting that, "cultures are different, and the strategies are different."

Wexler offered three pieces of advice for hospitals and health system leaders who are looking to pursue M&A.

1. Culture fit

While hospitals and health systems may find themselves complementing each other in financial areas or could help each other competitive issues, a culture fit is just as important.

"One of the biggest challenges is making sure there's cultural alignment. Oftentimes, when organizations are working on a merger or an acquisition, they're trying to solve for other problems.," Wexler says. "But if you don't have culture, and there isn't a likeness of mind around what one is trying to achieve, then the merger or acquisition will be quite difficult."

2. Camaraderie

Going along with culture, a sense of camaraderie between the organizations can also play a pivotal role.

There must be "a willingness to take on difficult issues, even during negotiations, and work through those issues in a professional, thoughtful manner, in a way that each party winds up listening very carefully to the other to understand their needs," Wexler says. They must also be willing to compromise.

"If an organization is working on a merger or acquisition and it feels like it's only one-sided, and the other party isn't listening, that's the start to a bad marriage. You may wind up in divorce."

3. Working through differences

Wexler suggests that organizations entering M&A talks should have contingency plans in place for "the worst thing that can happen."

"For whatever the worst thing is, there should be remedies for that, where the parties are required to sit down and work through their differences, and not immediately turn to the court system or lawyers to solve their issues. This is what good professional leaders do with one another," Wexler says.

"If push comes to shove and it can't get resolved, there should be exit clauses that allow the parties to separate in a manner that doesn't hurt the people that they serve out in the community," he says.

Melanie Blackman is the strategy editor at HealthLeaders, a Simplify Compliance brand.


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