Banner Health and University of Arizona Health Network pursue merger

A definitive agreement may be signed as early as September. The potential affiliation would make Banner Health Arizona’s largest private employer with a combined 37,000 people, as well as make it the first non-profit statewide integrated care network.

Announcement of the plans came following the votes of both organizations’ boards of directors in favor of proceeding with negotiations. In addition, the Arizona Board of Regents also voted to authorize the University of Arizona to move forward with the University of Arizona Health Network and Banner merger.

According to the two parties, the goal is to create a statewide healthcare organization and a comprehensive new model for academic medicine. Banner Health has locations in seven states, but it is based in Tuscon, Arizona, and most of its locations are concentrated in that state, including 16 of its 27 medical centers.

The affiliation with the University of Arizona Health Network brings the prestige of a major academic medical center to Banner Health, while the University of Arizona Health Network gains greater fiscal sustainability. It has had persistent budget shortfalls and low operating margins in recent years and currently carries a debt burden projected to be $146 million, according to its own press release. Banner, in contrast, posted a 2013 financial report indicating net 2013 end of year assets in excess of $4 billion.

The proposed agreement should generate approximately $1 billion in new capital, academic investments, and other consideration and value beneficial to the University of Arizona. Banner also will pay off the University of Arizona Health Network’s debt, and buy it a $21 million piece of land that it is currently forced to lease. Other anticipated investments include $500 million within five years to expand and renovate the University of Arizona Health Network’s medical center, and build new facilities as appropriate, plus the creation of a $300 million endowment that will provide a $20 million per year revenue stream to advance the university’s clinical and translational research.

Additional funding may also come if the partnership creates the growth in revenues and operational efficiencies anticipated by the university and Banner Health.

“We’re honored that the UAHN Board of Directors strategically sought Banner to create Arizona’s first statewide health system to help strengthen medical education,” said Peter S. Fine, president and CEO of Banner Health in the press release announcing the plans to merge. “Banner’s vision is to sustain a position of national leadership. This opportunity to join with a premier academic organization significantly advances Banner towards this vision.”

The organizations’ past history of working together on the Graduate Medical Education program at Banner Good Samaritan Medical Center in Phoenix may help smooth the path to a partnership. Along with improving access to advanced care for all Arizona residents, a hoped for outcome is to also train more physician specialists and allied health professionals in Arizona.