Banner to rebuild UA Medical Center; regents OK merger

Banner Health has plans to rebuild Tucson’s only academic medical center in a three-year project estimated to begin in 2016.

The details emerged Wednesday before the Arizona Board of Regents voted unanimously to approve a merger between the Tucson-based University of Arizona Health Network and the Phoenix-based Banner Health, with Banner Health being the surviving entity.

The complex deal is expected to close Feb. 27. It has three main components — the merger, a deal to purchase land that includes rebuilding the main hospital, and a long-term academic affiliation with the UA College of Medicine, both its Tucson and Phoenix locations.

There’s no change in the governance of the medical school, officials stressed — that remains under the jurisdiction of the UA and the regents.

The $1.2 billion UA Health Network is an umbrella that includes two hospitals, three health insurance plans, numerous clinics and University Physicians Healthcare, which staffs the hospitals with doctors from the UA.

The UA Health Network’s two hospitals are the UA Medical Center’s university campus at 1501 N. Campbell Road and the UA Medical Center’s south campus at 2800 E. Ajo Way. According to terms of the merger detailed in the regents meeting, Banner will assume a lease with Pima County to take over operations of the south campus hospital.

The university campus houses the region’s only top-level trauma center, offers specialized treatments that aren’t available at other local hospitals and has research doctors with dual faculty appointments at the university. It was built with taxpayer money but it is now part of the UA Health Network.

Some details about the new hospital construction:

• The existing hospital will not be shuttered but rather rebuilt and renovated, and expanded with new construction to the west, on land adjacent to the hospital’s Diamond Children’s center.
• Construction is expected to begin in the first half of 2016 and take about three years.
• The aim is to have a state of the art facility, not to add more patient beds.
• The total cost of the project has not been determined, but officials said it’s a good possibility that it will be more than $500 million.

The UA, which had previously owned and operated the university campus hospital, privatized it in 1984. However, the UA still owns the land, and a land sale is part of the transaction approved Wednesday. Officials say the hospital building has no book value.

While the hospital land price had previously been estimated at $21 million, the updated post-appraisal deal calls for Banner to pay the UA $60 million. The deal will include not only the hospital land but a piece of property immediately west of the hospital where the new hospital building will be constructed.

The UA will put $39 million of the $60 million land payment into a trust to establish an academic enhancement fund. Banner will contribute $261 million to that fund.

The fund is part of a 20-year commitment to promote the academic medical enterprise in Phoenix, Tucson and throughout Arizona, officials said.

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Both the UA Health Network and Banner Health enlisted Cain Brothers, an investment banking firm, to analyze the deal and give a “fairness” opinion on it. A representative of the firm told the regents the analysis concluded the deal was fair to both sides.

Banner executive Kathy Bollinger, who was in Tucson for the vote, will be assuming the title of president of the Banner-University Medicine Division, a new division of Arizona’s largest health system.

Bollinger has been president of Banner’s Arizona West Division for six years. Her new job means she’ll be in charge of three hospitals — both campuses of the UA Medical Center, which will be renamed Banner-University Medical Center Tucson and Banner-University Medical Centers South, and Banner Good Samaritan in Phoenix, which will be renamed Banner-University Medical Center Phoenix.

Bollinger said she could not disclose specifics about the new hospital building, but along with UA President Ann Weaver Hart offered some details.

“We actually will be rebuilding the core of the hospital,” Bollinger said. “It is more cost-effective and prudent to rebuild it than to retrofit it. ... It will absolutely feel like a new hospital.”

Diamond Children’s and a recent expansion project are usable and will be incorporated into the new facility, she said.

“The patient experience will be completely transformed,” Hart said. “It’s really a very complex but very mutually beneficial relationship.”

Once the deal closes, the regents lose the oversight they had of the UA Health Network board and UA Medical Center bylaws.

But the regents will retain jurisdiction over the UA College of Medicine in Tucson and the UA College of Medicine in Phoenix.

The regents and the UA will be responsible for enforcing Banner’s post-closing agreement, including a minimum $500 million capital commitment to enhance clinical services in Tucson. The centerpiece of that will be the new university campus hospital.

Bollinger said Banner Health needs the UA in order to become one of the 10 leading health-care delivery systems in the country for years to come. “We need the curiosity, we need the academics, we need the science to identify what is the right and best way to take care of patients,” she said.

The regents will also enforce Banner’s 10-year commitment not to sell or close the UA Medical Center hospitals and to maintain key clinical services and programs in Tucson for five years. The UA Medical Center south campus on Ajo Way is owned by Pima County — both the hospital and land. Banner will continue a lease with the county.

“We’re going to have people in this state who will have access to care they have not had before by bringing these two entities together,” regents board president Eileen Klein said. “I can’t underscore enough the significance of this transaction.”