Sansum-Cottage Merger on Hold

The Federal Trade Commission (FTC), concerned about monopolistic consequences, put Sansum Clinic and Cottage Health System ​— ​the two 9,000-pound gorillas of South Coast health care ​— ​on notice. If they wish to further pursue the merger they proposed 13 months ago, one of the two entities would have to divest its outpatient surgical center. Cottage operates the first freestanding outpatient surgical center in the state ​— ​with 40 employees and four operating theaters. There, 2,500 operations were performed last year. Sansum just opened one of California’s newest centers only three months ago and performed 30 operations there last month.

In reply, Cottage CEO Ron Werft and Sansum executive Kurt Ransohoff jointly announced Cottage would sell its surgical center and equipment ​— ​but not the real estate. Werft said no price had been envisioned, but specialized brokerage firm Cain Brothers has been hired. Discussions between the FTC and the two health-care operations have occurred in the past 13 months, but very little written down, said Werft. “What we are able to determine is this is a big concern, and we have to address it,” he said. Asked if divesting the Cottage center will be sufficient for the FTC to green light the merger, Werft said, “We don’t know. We aren’t in a position to predict what the FTC will do.” Likewise, Werft stressed no sale would take place if the merger were not approved.

The merger would combine the county’s largest outpatient medical care provider, Sansum, ​and its largest in-patient care provider, Cottage. In the post–Affordable Care Act landscape, “integrated service” has emerged as a potent new buzzword, and the proposed merger purports to provide just that. Some primary-care doctors have expressed concern they might be left out in the economic cold should the merger be approved. Some big employers have expressed concern that further monopolization of medical care might drive up the cost of employee health care. Werft stated that the divestiture will delay the merger process by at least six months. For the 40 employees now working for Cottage’s surgical center, he acknowledged, “This will be an unsettling time.”