DALLAS - Catholic Health Initiatives, one of the nation's largest healthcare systems, on Jan. 7 announced plans to invest more than $1 billion in the Houston area's health care infrastructure over the next five years, including a replacement for St. Luke's Hospital on the Texas Medical Center district.

The announcement came seven months after Denver-based CHI acquired the Houston-based St. Luke's Health System for $2 billion, representing CHI's first move into the Texas market.

Under an agreement between CHI, St. Luke's and the Baylor College of Medicine, the new acute-care hospital will be built on Baylor's McNair Campus in the Texas Medical Center. The McNair Campus is currently home to two outpatient facilities owned by the college -- the Baylor College of Medicine Medical Center and the Lee and Joe Jamail Specialty Care Center. Baylor and CHI St. Luke's will jointly operate the new hospital.

"These agreements will bring to bear new capabilities and resources in an alliance that doesn't exist anywhere else in the region," said Kevin E. Lofton, president and chief executive officer of CHI.

Baylor currently uses the St. Luke's Hospital as part of its teaching facilities.

The new hospital will be named CHI St. Luke's Health Baylor St. Luke's Medical Center and eventually will replace the existing, 850- bed St. Luke's Medical Center at the TMC.

The first phase of the project - a 250-bed inpatient facility - is expected to open by spring 2015. The second phase, adding up to 400 additional acute-care beds, is expected to be completed in 2018.

To build the new hospital, CHI plans to use proceeds from previously issued debt and cash on hand or cash from operations, a spokesman said. The building is already underway. There are currently no plans to issue debt in fiscal year 2014, he said.

CHI issued $1.2 billion of debt in a complex multi-state financing in October that expanded CHI's operations and brought a downgrade from the ratings agencies. Standard & Poor's lowered CHI to A-plus from AA-minus. Moody's Investors Service dropped its rating to A1 from Aa3, while Fitch Ratings lowered its rating to A-plus from AA-minus.

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