The proposed acquisition of the financially strapped Legacy Health by the Oregon Health and Sciences University (OHSU), raises more questions than it answers. First and foremost is that, to date, there has been no clear articulation of why this transaction will be in the public interest—not only in the interest of Oregon consumers, but also in terms of addressing the larger challenges facing Oregon’s health care system: the escalating cost of premiums and deductibles, the lack of access to behavioral health, and the crisis in primary care.
This is a fair question because OHSU is not just another hospital system in the Portland metro area—it has a public mission. In 1995, while serving my first term as governor, I worked with President Peter Kohler to help negotiate what became Senate Bill 2, making OHSU a public corporation. This legislation sought to balance public accountability with operating flexibility. It gave the institution the ability to make independent programmatic and business decisions, answerable to its own Board of Directors, while still retaining its commitment to partner with the state to meet important public goals. And while OHSU is a public corporation, it still receives significant support from the state general fund (over $60 million in 2023).
Another fair question is how OHSU will raise the $1 billion, that they have committed to buy Legacy capital assets over the next 10 years ($100 million per year)? And, perhaps more importantly, what projected revenue stream will be used to service the debt—given the fact that OHSU will be inheriting Legacy’s hospital throughput problems, and a payer mix that is less than 30% commercial? Is part of this strategy to extract higher rates from payers and, if so, what will this mean for the cost of premiums and deductibles paid by consumers in the Portland market? The clearest finding in the research on these kinds of hospital mergers is that they increase cost for consumers, without clear improvement in quality, access, or equity.
The issue here is not simply whether Legacy needs a partner to remain financially viable—it likely does. The system is in dire financial straits, losing between $15-20 million each month. And clearly, it is preferable for that partner to be OHSU, rather than private equity, or a predatory publicly traded company, like HCA or Tenet. But “saving” Legacy Health from a megacorporation is not, in itself, a justification for the acquisition. The issue is in the nature of the transaction itself – whether it will improve the health care ecosystem in the Portland metropolitan area, whether it will lower overall cost and expand access. Creating a near-monopoly in Portland is not the only solution here—and it may not be the best.
For example, has there been a serious discussion of creating a “distressed hospital fund” similar to those in California and Washington? Legacy Health provides health care to a disproportionate number of people on the Oregon Health Plan, so it is in the state’s interest to ensure that it remains financially viable.
The central question, however, turns on OHSU’s intentions and its strategic vision. Does OHSU view this acquisition primarily as an in-market horizontal merger of two existing hospital systems—or as an opportunity to rethink its business model, with a greater focus on population health, primary care and total cost of care management? To date, it appears to be the former: OHSU has repeatedly stated that its strategic vision is to further focus on complex specialty care as a tertiary and quaternary medical care center. This acquisition certainly will facilitate that goal.
With greater market power, and access to a larger geography, through Legacy’s six hospitals and 90 clinics, OHSU would be able to extract higher prices from payers and exert pressure on primary care physicians to control referrals in support of a specialty-based strategy. But the critical question remains: is that outcome in the best interest of Oregon, or of consumers in Portland? Is this what our community needs?
If, on the other hand, OHSU is committed to rethinking its business model to focus on population health, investing in primary care, and total cost of care management, then, it should make that clear to Oregonians—as well as how this strategy will unfold. Is part of the long-term vision to become the dominant high quality, low-cost hospital system in the Portland metropolitan area, driving down cost in the region and expanding access? If so, Oregonians need to know that—and they need to know specifically how this merger will achieve that. If not, Oregonians deserve to know that as well.
Ultimately, this is a momentous decision that will shape the Portland health care ecosystem for decades to come. If we’ve learned anything from the research of the last three decades on these kinds of mergers, it suggests that, all too often, premiums go up, wages stagnate, and promises of efficiency, quality, and access to be illusory.
As the Health Care Market Oversight (HCMO) program reviews this transaction, I urge state leaders to be asking these critical questions—and to be considering alternatives to acquisition that might be better aligned with the most pressing needs facing our community.
