Ashland Community Hospital announced it will begin exclusive partnership negotiations with San Francisco-based Dignity Health, the nation's fifth largest hospital system.

Ashland Community Hospital announced it will begin exclusive partnership negotiations with San Francisco-based Dignity Health, the nation's fifth largest hospital system.

The hospital's board decided on Dignity Health after an eight-month-long proposal and review process that included interest from five hospital organizations.

"I think that Dignity can provide us with the needed support and economy of scale of a large health care system, while maintaining our dignity and maximizing local control," said Mark Marchetti, ACH chief executive officer.

Marchetti said Ashland Community Hospital will retain its name and continue to collaborate with hospitals in Medford if a partnership is formed with Dignity.

The agreement to enter into a 90-day period of one-on-one negotiations with Dignity Health was reached April 3, he said. He expected negotiations to get underway in the next week or two.

Dignity Health, formerly known as Catholic Healthcare West, changed its name and its affiliation with the Catholic Church on January 2012. Since the change, the hospital system is no longer a sponsored ministry of the Catholic Church, but a self-governing, nonprofit health care system.

However, 25 of Dignity's 40 hospitals remain Catholic-affiliated and are required to adhere to the Ethical and Religious Directive for Catholic Health Care Services. Non-Catholic hospitals within the health care system are still barred from performing direct abortions, in vitro fertilization, or physician-assisted suicide.

Unlike the Catholic-affiliated hospitals within the system, its non-Catholic hospitals can administer reproductive sterilization services to patients.

Currently ACH doesn't perform direct abortions, in vitro fertilization or physician-assisted suicide, said Marchetti.

He said none of the services ACH currently provides to its patients will be compromised if an agreement is reached with Dignity.

"I think that's one of the strong points that we found with Dignity "… its values are well-aligned with ours," said Marchetti. "Because they have restructured as a non-faith-based health care system."

Marchetti said ACH has met with the Ashland City Council to keep it up to date on the affiliation process. The City Council will have a hand in approving whatever lease arrangement emerges out of an alliance.

The other organizations that presented proposals to partner with ACH are Asante Health System, which runs Rogue Valley Medical Center in Medford; Providence Health & Services of Seattle, which operates Providence Medford Medical Center; and Capella Healthcare of Franklin, Tenn.

"The board felt that Dignity Health offered the best cultural and business fit for both our hospital and our community," said Marchetti. "We were fortunate to have had four strong potential partners interested in affiliation with our hospital."

Dignity Health operates 40 hospitals and 150 care centers in California, Arizona and Nevada, employing about 65,000 people. If a partnership is formed with ACH, it will be the health care system's first affiliate in Oregon.

"We anticipate a mutually agreeable and beneficial outcome," Marchetti said in a press release Tuesday. "We hope to make a formal announcement and provide more information on our alliance in early July."

Dignity Health's institutions closest to Ashland are in Mount Shasta, Redding and Red Bluff, Calif.

Representatives from Dignity Health chose not to comment on the possible partnership when they were contacted, "due to the confidential due diligence process we have just entered," said Tricia Griffin, a public information officer with Dignity.

The relatively small size of ACH is primarily what drove its board to begin pursuing a partnership in July, said Marchetti. Its size makes it a challenge to compete with Medford hospitals, he said.

Its board also was worried that possible cuts in Medicare and Medicaid reimbursements would further strain its resources.

The hospital received 53 percent of its total revenue from the Medicare program last fiscal year, up from 41 percent in 2003-2004. Last year the hospital took on a $9.4 million Medicare shortfall, which is the cost ACH absorbed above what the program reimbursed.

The hospital lost another $1.6 million from uncompensated charity care, and an additional $1.5 million from people who didn't pay their medical bills, its annual report shows.

Reach reporter Sam Wheeler at 541-499-1470 or email