Oregon Health & Science University will join forces with Legacy Health in a transaction that will reshape the Portland health care market, sources say.

Four sources close to the two health systems told The Oregonian/OregonLive of the looming transaction on Wednesday.

Many details of the deal are unknown. Neither Legacy nor OHSU officials would initially comment.

Late Wednesday, OHSU issued a press release confirming the deal.

“OHSU has enjoyed a decades-long relationship with Legacy Health, united by a shared commitment to improving the health and well-being of people in Oregon and beyond,” said Danny Jacobs, M.D., M.P.H., FACS, president of OHSU. “Now, we have an opportunity to join together and take a decisive next step that will help deliver on our promise to ensure the best access and care for all who need us, today and in the future.”

A letter of intent, “the first step in a transaction process by which Legacy will become part of OHSU, was unanimously approved by the boards of directors of both OHSU and Legacy,” OHSU reported.

An official close to the transaction said OHSU will be the surviving entity. It has reportedly committed $1 billion into the merged entity over a decade.

The fate of the various Legacy hospitals under OHSU is unclear as there are no obvious geographic conflicts between the respective systems.

Legacy, the largest hospital chain in Portland, has struggled financially, leading to recent speculation that its leaders might seek a merger or acquisition.

Legacy, which owns and operates seven hospitals in the metro area, lost a catastrophic $172 million in its 2023 fiscal year. That depleted its capital and raised questions about its viability as an independent operation going forward.

OHSU operates a complex of hospitals, health clinics as well as medical and dental schools. A partially state-funded public corporation, OHSU has a financial cushion that other local hospital operators lack. Nevertheless, it posted an adjusted operating loss of $90 million in its 2022 fiscal year.

With about $4 billion a year in operating revenue, OHSU is larger than Legacy, which brought in $2.5 billion in its 2023 fiscal year.

OHSU has about 18,000 employees. Legacy has about 13,000.

The deal has to be approved by regulators. One issue they’ll consider is market share and whether a merged entity might violate antitrust law.

Reached late Wednesday, Oregon Health Authority spokesperson Amy Bacher said she hadn’t heard about the transaction.

The metro area is dominated by five enormous health systems – Kaiser Permanente, PeaceHealth, Providence Health and Services, OHSU and Legacy. The Five Families, as they are called tongue in cheek, have waged a fierce battle for market share, buying out other hospitals and forging partnerships with health insurers.

OHSU in 2016 joined forces with Tuality Healthcare system in Hillsboro. It also partnered with Moda, the Portland insurer. Legacy in 2016 merged with PacificSource, a major Moda competitor.

The pandemic has been extremely difficult for all of the Portland hospitals and health systems. They were forced to bring in expensive traveling nurses and then, their non-COVID-19 business plummeted – along with employee morale.

Legacy Mount Hood Medical Center.

Nurses and local families held a candlelight vigil Friday, March 17, 2023, outside of Legacy Mount Hood Medical Center to call on Legacy Health executives to reverse course and save the Family Birth Center at Legacy Mount Hood Medical Center. Mark Graves/The Oregonian

Legacy alienated many of its employees at its Legacy Mt. Hood Medical Center when it announced it was closing the facility’s birthing center. State regulators weren’t happy with the move either, arguing that Legacy never sought the required state approval.

Legacy Mt. Hood’s nurses overwhelmingly voted to unionize after the birthing center clash.

More recently, a security guard at Legacy Good Samaritan Hospital in Northwest Portland was shot and killed by a disgruntled visitor to the hospital. A nurse was hit by shrapnel, suffering minor injuries.

The incident led to an outpouring of frustration from nurses and security guards who argued that Legacy had allowed its security department to be understaffed and underfunded.

The financial ills at Legacy Health, Portland’s largest hospital chain, has significantly eroded its capital and its liquidity. Legacy’s working capital plummeted 40% in its 2023 fiscal year. Newly available audited financials of the non-profit show its working capital stood at $245 million as of March 31, 2023. The prior year’s number was $422 million.

Legacy’s “days of cash on hand” – a key metric of liquidity – fell from 244 to 175. Analysts consider 150 to be a significant danger sign.

There were signs of improvement in the non-profit’s first quarter of the current fiscal year. Legacy reported operating income of $10.1 million for the quarter compared to an operating loss of ‐$46.9 million last year.

Legacy in July announced it had reached a tentative deal to unload its lab operations, an effort to restructure the struggling Portland hospital chain’s balance sheet and pull out of a steep financial nosedive.

Laboratory Corporation of America, commonly known as Labcorp, will buy some Legacy lab facilities and manage its in-patient labs under a long-term agreement, Legacy announced.

This is a breaking news story and will be updated.

— Jeff Manning; jmanning@oregonian.com