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Advocate, Aurora and Dignity Health, CHI Sign Hospital Merger Deals

Chicago may see new health systems in 2018 if the hospital merger deals between Aurora and Advocate Health Care and Dignity Health and CHI close.

Hospital mergers between Advocate and Aurora Health Care and Dignity Health and Catholic Health Initiatives

Source: Thinkstock

By Jacqueline LaPointe

- The healthcare market in Chicago is bracing for some major changes starting with the recently announced hospital merger between Advocate Health Care and Wisconsin-based Aurora Health Care.

The largest health system in Illinois revealed its intentions earlier this month to cross state lines and create the tenth largest non-profit hospital system in the country. The similarly-sized systems would boast 27 hospitals and almost $11 billion in annual revenue, the system’s stated in a joint press release.

This is Advocate’s second attempt to merge with another health system. The health system dropped a healthcare merger plan with NorthShore University Health System in March after the Federal Trade Commission (FTC) attempted to halt the merger.

FTC officials opposed the merger of the two Chicago-based systems, arguing the combined entity sparked antitrust concerns. Their complaint stated that the merged system would control over one-half of inpatient hospital services in the region, resulting in higher healthcare costs and reduced incentives to improve care quality.

Following the controversial merger attempt, Advocate set its sight on merging with an out-of-state health system. Aurora Health Care primarily operates in Wisconsin, with just three health centers in northern Illinois.

READ MORE: How Providers Can Detect, Prevent Healthcare Fraud and Abuse

“These markets are very distinct,” Advocate’s President and CEO Jim Skogsbergh told the Chicago Tribune. “This is not a series of ZIP codes in the northern area of Chicago.”

Skogsbergh and Aurora Health Care’s President and CEO Nick Turkal, MD anticipate the healthcare merger to improve care value and access in the Midwest.

“For the communities in Illinois and Wisconsin that we serve and for our two organizations, this is an unprecedented opportunity to shape our future and better serve patients,” said Turkal. “We are fortunate that our organizations are coming together from unique and complementary positions of strength, particularly at a time of evolving industry dynamics. Working together, we will deliver on the promise of value for the people who receive, provide and pay for health care.”

The merger may also reverse recent financial troubles experienced by both health systems. Advocate reported that the system’s net income decreased 27 percent in the third quarter of the 2017 fiscal year. Falling net income put the health system in a tight position as expenses grew by 13.8 percent in the third quarter.

Aurora Health Care also saw lower operating income this year compared to 2016, the Chicago Tribune pointed out.

READ MORE: Hospital Mergers Take Two or More Years to Produce Cost Savings

Shrinking reimbursement rates from private payers and federal payment rates that do not cover the total costs of care have created financial challenges for all healthcare organizations, including large health systems like Advocate and Aurora Health Care.

The health systems plan to close the hospital merger by mid-year 2018 depending on state and federal regulatory review and approval. Skogsbergh and Turkal expect to jointly run the merged entity as co-CEOs.

Additionally, a new health system may be calling Chicago home by the second half of 2018. Dignity Health and Catholic Health Initiatives announced that the health systems recently signed a definitive agreement to merge.

The merged health system would include over 700 care sites and 139 hospitals across 28 states. Like the Advocate and Aurora Health Care merger, the merged system would span the country with no overlap across hospital service areas.

The organizations plan to build a corporate base in Chicago and operate under a new name by the second half of 2018, depending on federal, state, and church approvals.

READ MORE: Do Hospital Mergers Disincentivize Orgs to Lower Their Costs?

Similar to the Advocate and Aurora Health Care merger, Dignity Health CEO Llyod Dean and Catholic Health Initiatives’ CEO Kevin Lofton will also both serve as the merged entity’s leaders. They anticipate the merger to boost community-based care, improve population health and chronic disease management, and advance health IT use.

“We are joining together to create a new Catholic health system, one that is positioned to accelerate the change from sick-care to well-care across the United States,” state Lofton. “Our new organization will have the talent, depth, breadth, and passion to improve the health of every person and community we serve.”

The merged system will also have a strong charity care mission. Dignity Health and Catholic Health Initiatives collectively provided about $4.7 billion in charity care, community benefit, and uncompensated care for Medicare and Medicaid beneficiaries in 2017.

“Continuing the traditions of both organizations, the new system will support high-priority strategic programs as well as expand existing efforts to improve the health and well-being of the nation’s most vulnerable populations,” the health systems stated. “The new system will be guided by our shared mission that emphasizes social justice for all people and will work to ensure that those values are part of the local and national healthcare environment.”

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