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Cottage Health-Sansum Clinic Merger Called Off After 4-Year Effort

2 Santa Barbara County medical powerhouses drop plans in face of ongoing delays from Federal Trade Commission

After four years of regulatory delays, Cottage Health and Sansum Clinic have given up on their merger plans — aimed at creating ‘an integrated health delivery system.’ Click to view larger
After four years of regulatory delays, Cottage Health and Sansum Clinic have given up on their merger plans — aimed at creating ‘an integrated health delivery system.’ (Noozhawk photos)

The planned marriage of Cottage Health and Sansum Clinic, announced nearly four years ago, has been called off as the two Santa Barbara County medical powerhouses faced ongoing difficulties gaining the needed federal approval.

“As we approach the four-year mark, we have decided together to withdraw the proposal so we can better move forward with long-term planning at each of our nonprofit organizations,” Cottage Health and Sansum said in a statement released to Noozhawk on Thursday.

Touted in June 2013 as a way to “create an integrated health delivery system,” the merger would have combined Cottage’s three hospitals and other facilities with some two dozen ambulatory clinic sites throughout Santa Barbara County.

The merger required approval from the Federal Trade Commission, which raised competitive issues, according to Ron Werft, Cottage Health’s president and CEO, and Dr. Kurt Ransohoff, Sansum’s CEO, president and medical director.

"We did believe the merits of the deal were very justified, in the fact that this is an outpatient organization, Sansum Clinic, merging with a predominantly inpatient organization," Werft told Noozhawk in a telephone interview early Thursday afternoon. "And so along the way, the Federal Trade Commission, after looking at the data and interviewing folks, focused in…on the very small areas where we have competitive overlap."

That key sticking point involved outpatient surgery centers, which both Cottage and Sansum operate.

Cottage had agreed to divest its interest in out-patient surgery centers, but regulators questioned whether that would be enough to overcome the competitive issues, Werft said.

"Our perception of this is it’s unlikely the the Federal Trade Commission is going to say, sure, we think this is OK," Ramsohoff said. "And we’ve decided that rather than continue to stay on the path, it’s better for both our organizations and the community for us to stop going down this path and pursue different ways of working together."

After four years, “they (the FTC) remained unconvinced that that divestiture would result in sufficient competition,” Werft added.

The two entities noted that Cottage and Sansum have worked together in various ways for nearly 100 years, “and will continue to do so in the future.”

Ongoing collaborations include:

» Electronic health records

» Clinical programs including those in surgery, cardiovascular services, critical care and oncology

» Research

» Population health.

» Support for the Santa Barbara Neighborhood Clinics

» Support for the Cancer Center of Santa Barbara

Werft noted that “the integration model is very common in California and across the country, so we’re disappointed we couldn’t go forward.”

But he acknowledged that "they're all in larger metro areas, so I think our geography is a problem for us in that regard, in that we’re the only hospital system and Sansum is the only medical foundation in the region."

Through the merger, he said, Cottage and Sansum would have been able to become more efficient.

"Another lost opportunity is there would have been the opportunity to achieve financial savings," Werft said. "Health care affordability is top of mind for most people, and it certainly is for us, and there certainly is duplicated overhead between the organizations that we could have made some improvements there.

"And so we’re going to have to find other ways to achieve that."

Werft said he regularly responds to questions and concerns about Cottage Health being the sole hospital provider in the community, a role he believes is beneficial overall.

"The alternative of not having a single hospital system on the South Coast here, with the population we have, would be that we would not have a Goleta Valley Cottage Hospital, we would not have a Santa Ynez Valley Cottage Hospital, we would not have the Cottage Rehabilitation Hospital," he said. "All of those hospitals were not of the size that allowed them to remain independent, as medical economics changed.

"By putting them together, we’ve been able to provide all of the administrative support services of those hospitals, and we’ve driven millions of dollars every year out of the system, and that accrues directly to our patients and to our community, because we’re non-profit and we don’t pay that out to shareholders. It really allows us to provide very high-quality care."

Be that as it may, the ongoing uncertainty about the future of the deal appeared to be the deciding factor in the decision of Cottage Health and Sansum not to tie the knot.

“Really, what we’re getting at is it’s very hard to make plans when you don’t know if you are merging or not merging,” Ransohoff said. "We’re disappointed that this is not going forward, but we’re ready to get back to finding out how we can still achieve the goals in other ways."

Noozhawk executive editor Tom Bolton can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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