Hospital operator Catholic Health Initiatives, which has struggled after rapid expansion and a foray into health insurance, is in merger talks with Dignity Health to create one of the nation's largest nonprofit hospital system by revenue.

Catholic Health Initiatives and Dignity Health said in a statement they are in talks regarding "aligning their organizations." A person familiar with the matter said the talks involve a merger.

The deal would combine 103 hospitals owned by Catholic Health Initiatives, headquartered in Englewood, Colo., with 39 hospitals operated by San Francisco-based Dignity Health. Combined revenue for the new organization would reach $27.8 billion annually, based on the most recent financial statements.

The proposed union is the latest mega-merger among U.S. hospital operators, both nonprofit and publicly traded. It comes as antitrust regulators have stepped up their scrutiny of such deals.

Catholic Health Initiatives operates in 18 states, but not in Arizona, California and Nevada, where Dignity Health operates its hospitals.

"The potential to align the strengths of these two organizations will allow us to play a far more significant role in transforming health care in this country," Catholic Health Initiatives Chief Executive Officer Kevin Lofton said in the joint statement announcing the talks, which were reported earlier by trade magazine Modern Healthcare.

Write to Melanie Evans at Melanie.Evans@wsj.com

(END) Dow Jones Newswires

October 24, 2016 15:25 ET (19:25 GMT)