CHOC to merge with Rady Children’s in San Diego

By Paul Sisson | San Diego Union-Tribune

There have always been similarities between Orange and San Diego counties. Both have about 3 million residents and dozens of miles of coastline. And another similarity is in the works.

On Wednesday, Children’s Hospital of Orange County and Rady Children’s Hospital announced their intent to merge, pending regulatory approval from the state attorney general.

The parent companies of each organization would merge under the name Rady Children’s Health with a governing board with directors appointed 50/50 by the two founding members. But both organizations also have subsidiary organizations that run everything from individual hospitals to charitable foundations and medical groups.

While the parent umbrella groups would merge, the plan is to leave the subsidiaries as they are, complete with existing governing boards. As to what names will appear on existing CHOC properties, the top executives at each hospital said signage is still undecided.

But Dr. Patricio Frias, Rady’s chief executive officer, said that everyone is aware of the brand recognition that organizations have earned in the communities they have served for decades.

“We want to make sure we’re honoring the histories of both organizations,” Frias said, speaking with Kimberly Chavalas Cripe, CHOC’s president and CEO, in an joint interview Wednesday.

A joint statement indicates that the two organizations believe that becoming one will help train and recruit talent, and expand access to pediatric care throughout Southern California and promote research.

Previous collaborations, including a newborn genetic testing initiative called Project Baby Bear, and a grant-funded project on population health that started in 2013, helped persuade the organization’s executives that the cultures were close enough to make a merger work.

“The fact that we have a good history together I think is going to set us up for success as we’re bringing our teams together and melding our cultures,” Cripe said.

“I agree completely,” Frias added.

Why keep the merged entity under the Rady name? Cripe said that it made sense to honor a name that has put so many millions of dollars into children’s health.

“I think it’s really nice to be able to recognize Ernest and Evelyn Rady for their generosity and their interest in pediatric health care,” she said.

Both health systems have done well in the annual Best Children’s Hospitals ratings from U.S. News and World Report. In the latest tabulation, eight of CHOC’s specialties earned national rankings. Rady earned 10 national specialty rankings and its first-ever spot on the report’s honor roll.

The two organizations are of a similar size.

According to state records, Rady reported a little more than $1 billion in net patient revenue in 2022 compared to $928 million for CHOC when the finances of its main hospital in Orange and CHOC Mission Hospital in Mission Viejo are combined.

Both operate extensive outpatient networks and both collaborate extensively with the University of California, Rady with UC San Diego and CHOC with UC Irvine.

The executives declined Wednesday to get precise about exactly how a merged organization would work. The combined organizations would together employ about 11,000 people with about 2,400 affiliated physicians.

At a time when inflation and workforce shortages have starved hospitals of revenue, there could be financial advantages by operating at a larger scale. But executives declined to say much about what those advantages might do for bottom lines.

“We’re both coming at this from a position of financial strength, and this is not about the finances,” Frias said. “This is about the kids and the care and the community and the opportunities that we see, particularly coming out of the pandemic and last year’s viral surge and tripledemic.”

“We are purely focused on care of children and adolescents in our respective areas,” Cripe added.

She said that the combined organization may find itself better able to recruit doctors who specialize in rare conditions who might not have had enough patient referrals at Rady or CHOC alone. A larger organization, one that bridges two University of California campuses, she added, could enhance research opportunities. And that is also expected to be the case for efforts training health care workers.

“We are committed to training the next generation of physicians and other workers, and you need a large clinical base in order to do that training,” Cripe said.

The two CEOs have committed to jointly running the merged parent company for two years after which Frias will take over the job and Cripe will slide into emeritus status, having spent 32 years at CHOC.