Banner Health/U of A Healthcare Merger

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The Arizona Board of Regents formally approved the merger agreement between Phoenix-based Banner Health and the University of Arizona Health Network. It’s a $1 billion-plus deal that creates the state’s largest private employer and changes the face of academic medicine and health care in the Southwest. Banner Health CEO Peter Fine will talk about the merger.

Ted Simons: Coming up next on "Arizona Horizon," a big move for medical and academic healthcare in Arizona. We'll hear about a new memorial to the state's own renaissance man, Ernest McFarland. And we'll see how harp music is helping the healing process. Those stories next on "Arizona Horizon."

Video: "Arizona Horizon" is made possible by contributions from the friends of eight, members of your Arizona PBS station. Thank you.

Ted Simons: Good evening and welcome to "Arizona Horizon." I'm Ted Simons. The governor and the state's schools chief are not getting along and the fight could wind up in court. Yesterday, superintendent of public instruction Diane Douglas fired the director and the assistant director at the state board of education. Today, governor Doug Ducey reversed the firings, saying that Douglas acted illegally. Douglas shot back with a press release saying that, quote, "Governor Ducey apparently views himself as both governor and superintendent of schools." Douglas goes on to say that she's within her legal rights to fire the two officials. A former attorney general and state schools chief disagree.

Tom Horne: The state board of education of which the superintendent is only one member is responsible for their own executive director. So a decision to fire the executive director would be made by the board as a whole and not by the state superintendent of schools.

Lisa Graham Keegan: Any elected official or appointed official only has the powers the public gives you so nobody got fired. She attempted to fire some people and she doesn't have that power.

Ted Simons: In her press release, Douglas says that governor Ducey has, quote, "refused to take calls or meetings with me personally since his swearing in and clearly has established a shadow faction of charter school operators and former state superintendents who support common core and moving funds from traditional public schools to charter schools." Douglas ran on a platform of getting rid of the common core education standards. We will have much more on this story tomorrow on the journalists round table. The Arizona Board of Regents recently gave formal approval to the merger agreement between Phoenix-based Banner Health and the University of Arizona Health Network. It's a $1 billion plus deal that creates the state's largest private employer. Supporters say that the merger promises to change the face of academic medicine and health care in the Southwest. Joining us now is Banner Health CEO, Peter Fine. Good to see you again. Thanks for joining us. What exactly did the board of regents approve?

Peter Fine: The board of regents approved a couple of things. One, they approved the ability for us to eventually acquire the land under the facilities that the university of Arizona health network occupy. And approved a 30-year academic affiliation agreement with the university of Arizona's medical schools.

Ted Simons: And this basically now gets banner into the Tucson area, correct?

Peter Fine: That's correct. And that will occur through our acquisition of the university of Arizona health network, that corporate entity had its own board of directors. It was a separate 501(c)(3), not for profit organization, so we are acquiring that organization and its assets and have separate agreements with the university of Arizona for its academic affiliation and a separate agreement with the board of regents for the land.

Ted Simons: You're also acquiring the U.A. healthcare's debt.

Peter Fine: They did have some debt and that was part of the acquisition and the price for the acquisition.

Ted Simons: And that was a couple million dollars in long term debt. Why did they run that debt up?

Peter Fine: You ring that debt up over years because you're investing into your facilities, you're borrowing money at not for profit rates to invest into the business and invest into the facilities, which they have done over a number of years.

Ted Simons: So that's taken over now and that's taken care of. And it sounds like between the two, banner focuses on patient care whereas the U. of A. focuses on academic issues and research, and now those are combined?

Peter Fine: Those are coming together. So the university of Arizona and its medical schools will stay a separate entity as they are today and there is a long-term affiliation agreement between the two organizations for us to work together on all things related to the academic environment, including training, research and patient care.

Ted Simons: Give us an example of how that would work, I know that was a big agreement, with training a lot of money, $260 million by banner for academic enhancement funds, that particular avenue, talk to us more about that.

Peter Fine: So one of the things that we wanted to try to do is to stabilize the academic environment for a long period of time. Healthcare is a very unstable business these days, organizationally and one of the things we were trying to achieve is not only to have facilities in a patient care organization that would be stable for a long period of time but to have the medical schools have a long-term stability as well and as part of the agreement, not only did we acquire the assets of the university of Arizona health network and agreed to invest a significant amount of money into facilities and facility replacement, but we also agreed to put additional funding into the medical school, both directly into the medical school which relates to the $260 million fund you talked about, which will throw off $20 million a year that we will give to the medical school for the 30-year period of time. In addition, there's an additional $20 million a year that the academic management council which is made up by three people from U. of A. and three people from banner, that will manage the whole training and academic relationship and will have additional funds for recruitment purposes and the expansion of graduate medical education slots.

Ted Simons: And the idea again of changing the face of academic and medicine research, the whole nine yards in the southwest, that's a pretty bold statement. This is a pretty big merger here. What face is changing and how?

Peter Fine: It is a bold statement and it is a big merger. And it's unique and hasn't been done many times around the country. And our board, banner's board, when they got into this, felt a strong commitment that one, they had to do what is in the fiduciary responsibility for the organization that they're a board of but on the other hand, see themselves as a significant community asset and there for if we could use our community assets and use it in a way to help stabilize this very, very important asset in Arizona being the medical schools, they felt it was an obligation that they should take on.

Ted Simons: I know there was concerns by access, the state Medicaid program, banner didn't win the access contract on it's own, they acquired a group here that did. Respond to that, please.

Peter Fine: Well, we had put a bid in, in partnership with blue cross in the last bid process for an access contract in Maricopa county which we did not win. Through this acquisition, one of the things that's owned by the university of Arizona health network is an access insurance plan. That insurance plan is in 11 other counties, not in Maricopa county so it has no relationship to each other, because our bid was for Maricopa county and this acquisition of the plan is for other counties outside of Maricopa.

Ted Simons: So the U. of A., the family care plan I think is what it's called, what you're saying but again, the access folks did see a problem there with the integrity of the bidding process.

Peter Fine: It had nothing to do with the integrity of the bidding process because the two things were totally separate situations, not one related to the other and they must have agreed to that concept because they did approve the acquisition.

Ted Simons: What's next now in the process? Are we going to start seeing different signage? Different references? What's next?

Peter Fine: The acquisition will close on February 27th. So at that point in time, banner will assume control of those assets and the management of those facilities. We have teams of people that are already down there and involve in putting implementation plans together, both for how we're going to run the organization as part of banner and how we're going to invest capital over the next few years as part of the requirement that we had in the contractual relationship. Signage will change, name badges will change. And all of that will occur as we assimilate the organization and its employees into the banner health environment.

Ted Simons: And real quickly before you go, with patients at banner with loved ones at banner as patients, will they see anything different? What changes?

Peter Fine: We hope a number of things different, as a matter of fact. We'll see facility changes as we invest capital into facilities that have not been able to be invested in for long periods of time. We also hope that we will see significantly improved outcomes, patient care outcomes as we apply some of banner's principles to the whole process of patient care. I think this is going to be very, very good for the populace that uses our facilities and will have greater access as a result of it.

Ted Simons: Alright, very good. Thanks for joining us.

Peter Fine: Thanks.

Peter Fine:CEO, Banner Health;

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