Memorial Hermann Health System to merge with major Dallas system

Memorial Hermann Health System — the largest not-for-profit health system in Houston — has signed a letter of intent to combine with Baylor Scott & White Health in Dallas.

The potential combination likely will be the biggest such health care deal in Houston since the Episcopal Diocese of Texas sold Houston’s St. Luke’s Episcopal Health System to Denver-based Catholic Health Initiatives for $1 billion in 2013.

Now, Memorial Hermann and Baylor Scott & White will enter into a period of exclusive negotiations, due diligence and the standard regulatory review processes, according to a press release. A definitive agreement is expected to be complete in 2019. A new name for the proposed combined system will be determined before the deal closes, but Baylor Scott & White Health and Memorial Hermann will continue to operate under their brands in their respective service areas.

Combined, the two systems operate 68 hospital campuses and more than 1,100 care-delivery sites with nearly 14,000 employed, independent and academic physicians. They have more than 73,000 employees across more than 30 Texas counties.

Ross McKnight, currently chair of Baylor Scott & White Holdings’ board of trustees, will serve as chair of the proposed combined system’s board for the first two years, per the release. Before the deal closes, Memorial Hermann Health System’s board of directors will select a vice chair, who will succeed McKnight after his two-year term.

Jim Hinton, CEO of Baylor Scott & White Health, will be the CEO of the proposed combined system. Chuck Stokes, president and CEO of Memorial Hermann, and Pete McCanna, president of Baylor Scott & White Health, also will be part of the Office of the CEO, per the release, and leaders from both systems will comprise the rest of the executive leadership team. Executive and support staff will be located in Houston, Dallas, Austin and Temple, Texas.

“Together, we believe we will be able to accelerate our commitments to make care more consumer centric; grow our capabilities to manage the health of populations; and bend the unsustainable health care cost curve in the state,” Stokes said in the release. “Through this combined system, we have a unique opportunity to reinvent health care and make a profound difference in the lives of millions of Texans."

Memorial Hermann Health System is the second-largest health care system in Houston based on its 3,750 local licensed beds as of September 2017, according to Houston Business Journal research. It had been the largest until HCA Healthcare’s Gulf Coast Division, part of Nashville, Tennessee-based HCA Healthcare Inc. (NYSE: HCA), acquired four local hospitals last year.