Advocate Aurora Health and Atrium Health have completed a merger, creating a healthcare system with more than $27 billion in annual revenue, 67 hospitals, and nearly 150,000 employees.
Advocate Health, the name of the combined nonprofit, includes 40 hospitals from Atrium based in Charlotte, North Carolina, and 27 hospitals from Advocate Aurora, with joint headquarters in Downers Grove, Illinois, and Milwaukee. The transaction, announced Friday, links facilities in Alabama, Georgia, Illinois, North Carolina, South Carolina and Wisconsin. This is the latest in a series of regional health system mergers.
The Illinois Health Facilities and Services Review Board signed the agreement last month after an initial rejection in September, when board members voiced concerns about control of 10 affected Illinois hospitals. enjoy. Illinois Attorney General Kwame Raoul (D)’s office said it had no comment on the merger. The Federal Trade Commission declined to comment.
The office of North Carolina Attorney General Josh Stein (D) said Friday the state will take no action because it lacks “a legal basis in the office’s limited statutory authority to try to prevent block transaction Atrium-Advocate Aurora.”
Industry consultant Paul Keckley said the deal came as no surprise after it was approved by the Illinois board. The new system moves into the integration phase, and Keckley said the combined organization could fit into similar systems in the future, potentially creating a larger holding company with its own legacy operations. odd.
“Go big or go out. I mean, that was the rule even before the pandemic,” Keckley said. “There is a lot of catching up that people have to do, and I think the bigger ones have the advantage that their balance sheets will at least give them time to make the transition. A lot of smaller players can’t do that.”
While Atrium is estimated to invest $25 million to $50 million in the coming years to expand services in underserved communities in North Carolina, the health system can and should do more. Furthermore, Stein adds that he is concerned about the possible effects of this combination on access to health care.
Stein said Advocate Health told him it would maintain current levels of service in key departments, provide care to the needy, ensure no patient is denied care due to a lack of care. able to pay for and provide care to Medicaid and Medicare recipients without discrimination.
“Typically, when one hospital swallows another, patients pay more and receive worse care,” Stein said in a statement. “Currently, the law limits my office’s authority to protect patients’ access, quality, and cost of health care. We can do better, so I will work closely with leaders in the legislature to address this health care gap.”
Advocate Health says the merger makes it the fifth-largest nonprofit health system by revenue in the country. Its headquarters is Charlotte. The Advocate Health Care, Atrium Health and Aurora Health Care brands will continue to be used in their respective local communities, with Wake Forest University School of Medicine serving as the academic base.
The board of directors of the merged company will be divided equally between the two organizations. Atrium Health CEO Eugene Woods and Advocate Aurora CEO Jim Skogsbergh will serve as Co-CEOs for the first 18 months, after which Skogsbergh will retire. The spokesperson said additional leadership announcements could come as early as next week but no Advocate Aurora executives will be moving to Charlotte.
For the nine months of Advocate Aurora’s fiscal year ended September 30, the health system reported operating income of $58.9 million on revenue of $10.77 billion, down from $448, $8 million in operating income on revenue of $10.3 billion for the same period last year. Similar to other systems across the country, its return on investment plummeted and labor costs soar. Investment income fell from more than $1 billion to a loss of nearly $1 billion during that time period, while wages, salaries and benefits expenses increased by about 13%.
Atrium did not provide third-quarter financial statements.
Health systems may turn to mergers and acquisitions to mitigate increased costs, reimbursement pressures, and reduced return on investment. Those mergers increased between large regional systems in different states as the number of smaller systems dwindled and many local markets became highly consolidated. The Federal Trade Commission is often hesitant to challenge cross-market mergers because federal antitrust laws focus on in-state hospital mergers.
Sioux Falls, South Dakota-based Sanford Health and Minneapolis-based Fairview Health Services signed a letter of intent on November 14 to establish a $14 billion health system. Salt Lake City-based Intermountain Healthcare and Broomfield, Colorado-based SCL Health formed a $14 billion organization in April that operates 33 hospitals in seven states.
“In this environment, pursuing partnerships will be challenged or bring about many of the same problems you encounter,” says Nathan Ray, a partner at healthcare consulting firm West Monroe’s. having to be in your own geo-locked market is useless. practice M&A. “Finding these cross-market, cross-border partnerships and really extracting value from them is perhaps a new sign of how this consolidation will continue.”
Some of that value, Ray adds, stems from improving access by adding doctors and services, upgrading equipment, and improving their bargaining leverage with payers. Advocate and Atrium said in a press release that Advocate Health will improve outcomes, access and affordability, enhance population health, enable career advancement and achieve carbon neutrality. by 2030. They also plan to establish a new health equity institute in Milwaukee, seeking input from local and national partners to meet community needs.
While health system executives claim that hospital mergers will reduce costs, healthcare economists counter that these deals often don’t translate into more efficient care. about costs. A recent modern healthcare analysis of hospital operating costs after acquisition found that the best results were mixed.
Kevin Holloran, senior director of ratings agency Fitch Ratings, said in a recent report that mergers such as Advocate and Atrium appear more palatable to regulators due to less geographic overlap. , but operational coordination may be limited to clinical and office areas.
“However, the long-term goals for Advocate Aurora Health and Atrium Health may not be focused on saving costs, but on correcting long-standing flaws in the health care system, such as: access and disparities in health care based on ethnicity and socioeconomic status,” he wrote.
Advocate Aurora said this week that its hospitals in Wisconsin will raise prices next year by as much as 5.5% to cope with rising labor, drug and supply costs. Prior to that announcement, industry observers were concerned that Advocate Health would use its market power to force insurance companies and large employers in many states to pay high prices. Advocate Aurora hospitals in Wisconsin have consistently charged commercial insurers above-average rates since Advocate Health Care and Aurora Health Care merged in 2018, according to an analysis of data by Advocate Health Care and Aurora Health Care. Modern Healthcare from nonprofit research firm RAND Corp.
Two weeks after announcing the merger plan in May, Advocate Aurora was hit with a federal lawsuit in Wisconsin alleging zero-sum policy terms with insurers hindered competition. and allow the health system to raise prices. The case is ongoing.
Caroline Hudson contributed.
