Academic giant Stanford Medical Center in Stanford, California, and ValleyCare Health System, based in Pleasanton, California, have signed a non-binding letter of intent that would make ValleyCare’s two community hospitals and outpatient facilities part of Stanford Hospital & Clinics.

Under the agreement, ValleyCare Health System’s hospitals in Pleasanton and Livermore would become subsidiaries of Stanford Hospital & Clinics, while its ValleyCare physician organization would become part of Stanford’s University Healthcare Alliance physician network and medical foundation.

The agreement will still need to be approved by the boards of both ValleyCare and Stanford Hospital & Clinics, as well as ValleyCare’s corporate membership. In addition, there is the customary regulatory review.

However, the affiliation has clear benefits for both organizations. For ValleyCare, becoming part of Stanford allows access to the larger organization’s many resources, including those investments already made in healthcare IT and other infrastructure to succeed in future population health models for reimbursement. In addition, there is the branding benefit of the Stanford name, with its strong reputation for excellence in academic medicine and research.

“We are thrilled about the prospect of joining with Stanford’s health system,” stated Scott Gregerson, CEO of ValleyCare Health System, in a press release. “This affiliation has extraordinary potential for our patients, our staff and our region.”

Gregerson took over as CEO just this year after the abrupt departure of former CEO Mary Feit. According to the Silicone Valley Business Journal, the non-profit ValleyCare has faced financial difficulties. California Medi-Cal, the state’s version of Medicaid, has some of the lowest rates in the nation and inpatient volumes for hospitals shrunk nationwide last year.

For its part, Stanford gains a strong geographic foothold in the Tri-Valley region, an area inland from the San Francisco East Bay that has grown rapidly as the region rides a the tide of a technology boom. With housing rates skyrocketing in San Francisco and on the “Peninsula” where Stanford is located, many are moving further out into areas like the Tri-Valley.

Stanford rival UCSF has recently expanded aggressively in the Tri-Valley area and the addition of ValleyCare gives Stanford a good chance of challenging its rival for patients, physician allignments and market share in the East Bay.

There was no word on what would happen to ValleyCare’s affiliations with UCSF Benioff Children’s Hospital and the UCSF Helen Diller Family Comprehensive Cancer Center. Stanford of course has its own Lucile Packard Children’s Hospital and is a leader in cancer care and research as well.