CHICAGO – Missouri-based Ascension Health and Washington state-based Providence St. Joseph Health are in talks to merge, according to a report by the Wall Street Journal.

Ascension is already the nation’s largest not-for-profit health care system. If the two reach a deal, the combined system would overtake the for-profit provider HCA Healthcare as the largest overall system nationally. The systems have not confirmed the published report.

Providence Saint John's Health Center in Santa Monica, Calif.
A Providence St. Joseph hospital in Santa Monica, Calif. The system is reportedly in talks to merge with Ascension Health. Questar Construction

The two systems if combined would generate nearly $44 billion in annual revenue from 191 hospitals with operations in 27 states.

The healthcare sector has seen a renewed wave of consolidation in recent years as hospitals grapple with federal healthcare reform mandates, changes in payor mixes, and operational pressures that are eased by larger scale operations and greater negotiating powers with insurers.

Two Catholic systems -- Catholic Health Initiatives and Dignity Health -- announced plans to merge last week. Wisconsin’s largest system, Aurora Health Care, and Illinois’ largest system, Advocate Health, last week also announced their intentions to join forces.

Both Ascension and Providence St. Joseph systems carry high-grade ratings in the double-A category.

Ascension has about $6 billion of rated debt and generates $22 billion of revenue and had $33 billion in assets.

“Ascension is a true national practice, with an exceptional management team that influences health care on a national level, with a proven commitment to providing clinically excellent, affordable, and available health care,” S&P Global Ratings wrote in a report earlier this year. “Ascension has had an active, but highly disciplined M&A strategy.”

Providence has about $6.3 billion of debt outstanding, including $6 billion rated by Moody’s Investors Service. It generates a similar $22 billion of revenue annually. Moody’s shifted its rating on the Aa3 rating to negative in June.

The rating is supported by the system’s “large, mostly contiguous, service area covering much of the western United States; a large consolidated proforma revenue base…leading market share in most of its markets… an integrated care delivery platform… and an experienced, capable, management team with significant experience executing large and complicated affiliations,” Moody’s wrote. Challenges include declining operating margins.

The House version of tax reform would eliminate healthcare systems' use of the tax-exempt bond market but the two are considered strong systems that could withstand the blow and enjoy access to capital through the taxable market. If the talks pan out, the merger would also be subject to federal regulatory scrutiny and the Federal Trade Commission has moved to block some mergers over anti-competition worries.

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