Cottage, Sansum explore merger
Sansum Clinic and Cottage Health System, already the largest health care providers on the South Coast, plan to merge.
The two organizations said June 18 that they are exploring options to combine the two organizations, which each employ thousands of people and see tens of thousands of patients a year. The deal would combine Cottage Health System’s three hospitals — in Santa Barbara, Goleta and Santa Ynez — and Sansum’s 23 ambulatory sites under one organization.
“We need to really consider the backdrop of health care in general,” Sansum CEO Kurt Ransohoff told the Business Times. “With the Affordable Care Act, there are changes going to come to the health care landscape.”
Financial terms of the proposed merger were not disclosed. Both Cottage and Sansum are nonprofit groups, although Sansum is what’s called a 1206 medical foundation under the California Health & Safety Code.
Ransohoff said that makes Sansum an anomaly. Most 1206 medical foundations are already affiliated with a hospital. The only other 1206 health care organization that also operated independently was Facey Medical Foundation in Mission Hills. That group formed an affiliation with Los Angeles-based Providence Health & Services last year.
“That left us as the only independent 1206,” Ransohoff said.
Under the terms of the proposed deal, Sansum would serve as the medical foundation to the nonprofit Cottage Health System. The hospital would become the “corporate member” of Sansum Clinic, bringing the enterprise into the hospital’s system, according to a statement, and would “assure the availability of capital needed to expand health care services for the community through the work of Sansum Clinic and its affiliated physicians.”
Ransohoff said health care consolidation will be a trend in coming years as the provisions of the Affordable Care Act, which goes into effect next year, encourage partnerships between groups.
“Further improvements in quality, outcome, and affordability will require formal collaboration among physicians and hospitals,” Cottage Health System CEO and President Ron Werft said in a statement. “As health care reform takes hold, we are taking the necessary steps to meet the needs of patients in our communities. Sansum Clinic has the mission, infrastructure and track record to play an essential role in meeting these demands.”
Many details of the proposed merger still need to be worked out, Ransohoff said. The organizations are performing due diligence on the transaction until Oct. 1. Among other issues the groups will have to work out before the deal closes are regulatory and anti-trust requirements, he said.
Sansum had 1,040 employees as of April, according to Business Times records, and Cottage had about 2,600 employees between its three hospitals. Ransohoff said Cottage’s work force figures have climbed and are now closer to the 3,200-employee range.
If the two organizations combined and no jobs were affected, its roughly 4,200-employee headcount would put the organization in a position to rival UC Santa Barbara as the second-largest employer in Santa Barbara County.