Banner Health’s Future-Focused Merger

Arizona’s largest healthcare provider faces the new reality of consumerism, investing in a merger with the health system of the state’s land-grant university

As the largest healthcare provider in the state of Arizona, Banner Health—a nonprofit system with facilities across seven western states—recently identified a hole in its Tucson market presence and concluded that a merger could give it a significant presence there.

Last year, it merged with the University of Arizona Health Network and created a thirty-year academic affiliation agreement with the University of Arizona (UA).

Since the announcement, Banner Health has been planning facilities that marry an academic health network anchored by an academic medical center into its consumer-focused health system. It fits the Banner Health strategy, as it helps to expand its market to fully serve the population it hopes to enlist in its health plan in the future.

“We know the future of healthcare is dependent on the presence of great healthcare providers, and they come from great medical schools and academic training,” says VP of development and construction Kip Edwards.

“We took a step forward and found ways to bring our expertise around the business, quality, and consumer focus of healthcare and directly connect it with a great academic institution to support and influence the direction of academic medicine. Hopefully, in the process, we create a terrific opportunity for many new physicians to stay right in Arizona, and Banner is the system they want to be part of.”

“We felt it was important for us to be an influence in the future of academic medicine because of our strong belief that this is where healthcare has to go.”

According to Edwards, the chance to develop an academic medical presence became an additional motivation for the merger. “We have had a long-standing relationship with the UA for our residency programs at our medical center in Phoenix, and we wanted to enhance that,” he says. “This gave us an opportunity to enter the Tucson market and build a much bigger relationship with academic medicine.”

As the cycles of healthcare change, it follows that the way physicians are trained should change as well, Edwards says. He opines that changing the system to one that focuses on population health makes more sense than today’s “sick-care system.”

“You pay us a flat rate, and our job is to keep you healthy. If you never set foot in one of our facilities, we’re happy and you’re happy,” he says. “The focus is now on health, wellness, preventative programs, and providing care where and when it is most needed. Care may be provided by phone or a computer, often precluding you coming in for a visit.”

“It’s not currently the world physicians are trained in. We felt it was important for us to be an influence in the future of academic medicine because of our strong belief that this is where healthcare has to go.”

Upon the agreement of the merger, part of Banner Health’s deal was that it would invest $500 million in capital in the Tucson market and an additional $300 million in the academic affiliation. One of Edwards’ roles with this was to define how they would make the capital investment.

“The $500 million in capital is in two parts, with $400 million going into building a new 670,000-square-foot hospital facility at Banner University Hospital Center in Tucson. Portions of the current hospital are tired and due for replacement. This is giving them a facility that will provide space on par with the level of care they provide,” he says. “The other $100 million is going into an existing ambulatory campus to allow us to deploy our specialists into a different setting. People don’t want to come to a big medical center for care. They want something easy to get to and closer to home.”

As for the $300 million contribution commitment into academic medicine, Edwards says that there are numerous ways that it can be utilized but there are no specifics yet, although it will be administered by a joint committee and earmarked for the medical school.

Another approximately $500 million is being invested into the replacements and the updating of inpatient and outpatient at its existing Phoenix academic campus. Edwards notes that all of these moves are critical to support the teaching and training of physicians plus other providers, as well as the research and cutting-edge medical care associated with academic medical centers.

When the calendar turns to 2020, Edwards believes Banner Health will look very different than it does today.

“I hope that in five to ten years, we are predominantly focused on the health of a population of members with the bulk of our business in the risk-based healthcare arena, so we are really able to focus our investments on the health of those consumers versus creating facilities to handle their sickness,” he says.

That’s not to say that there won’t still be a full delivery system available—Edwards notes that there will always be hospitals, clinics, and labs. But his expectations are that Banner will continue to evolve from a structure that was set up to manage twenty-nine medical centers—on top of many other clinical activities—to a structure that’s really designed to manage the health of a population and to provide them care when they need it and where they need it.

“Banner’s major focus is on the consumer and understanding consumerism being the driver of healthcare in the future,” he says. “Both Banner and UA leaders are working together on how to best address that in the future.” AHL