Ascension looks to Chicago
Alexian deal would be area’s latest consolidation
Ascension Health has become the second major Roman Catholic health system in as many months to announce a deal in Chicago’s consolidating hospital market. Anthony Tersigni, president and CEO of Ascension, the nation’s largest Catholic health system, stressed the similar mission and values of suburban Alexian Bros. Health System, also sponsored by the Roman Catholic Church, as crucial to the deal as he discussed a nonbinding letter of intent that would add Alexian’s three hospitals to the 76 already owned by Ascension.
And should the deal close by year-end as expected, it would mark Ascension’s return to Illinois at a time of increased merger and acquisition activity among the state’s Catholic hospitals. Most recently, Trinity Health, a 33-hospital Catholic system based in Novi, Mich., announced plans to enter Chicago’s market.
The St. Louis-based Ascension—with $15 billion in yearly revenue and operations across 20 states and the District of Columbia— also appears eager to become a more significant player among the state’s Catholic hospitals. Tersigni said he believed the expansion would be “a great opportunity to consolidate Catholic healthcare in Illinois. That’s something we’ll be working on.”
Tersigni declined to say if Ascension would seek further acquisitions, but said the system would like to work with Catholic providers to improve quality and efficiency. “We believe there is an opportunity with healthcare reform and changing regulatory climate for Catholic ministries to collaborate further.”
Roughly one out of five of Illinois’ 211 hospitals are sponsored by the Catholic Church, figures from the Illinois Hospital Association show. All but five are owned by health systems. Consolidation already appears under way. In February, Provena Health and Resurrection Health Care announced tentative merger plans. Each has six hospitals and earned more than $1 billion in revenue last year, though Resurrection, based in Chicago, finished 2010 with lower profits ($4 million) and higher revenue ($1.4 billion) than Provena. Based in Mokena, Ill., Provena reported operating income of $8.5 million on revenue of $1.2 billion.
Larry Boress, president and CEO of the Midwest Business Group on Health, a health education and purchasing coalition for employers, said consolidation could give Chicago’s solo hospitals access to larger systems’ resources to improve quality and clinical integration, but employers also worry deals could reduce local access should buyers close hospitals or service lines.
“There’s a lot of challenges, and even a leading-edge hospital who is independent needs to make sure they’re positioned” well for new payment systems and information technology demands, he said.
Boress said he also hopes national systems that enter the marketplace support local quality improvement, such as a health IT exchange effort recently announced by the Metropolitan Chicago Healthcare Council.
Mark Frey, executive vice president of Arlington Heights, Ill.-based Alexian Bros., said the system selected Ascension as a partner because of its shared culture and values. Alexian decided two years ago to search for a partner. Executives feared the system’s solid finances would erode in coming years as reimbursement declined and demand for capital investment increased, he said.
Not all Catholic hospitals have landed in the arms of a religious suitor in Chicago and elsewhere, which has caused concern among Catholic healthcare operators.
Vanguard Health Systems, a for-profit chain based in Nashville that counts the Blackstone Group, a private-equity firm, as a majority owner, said in December that it would acquire its third Catholic Chicagoarea hospital, Holy Cross Hospital.
Vanguard acquired two hospitals from Resurrection in 2010. Cerberus Capital Management, also a private-equity firm, paid $895 million last year for struggling sixhospital Caritas Christi Health Care from the Archdiocese of Boston.
Boston-based Caritas Christi previously entered into talks with Ascension, but the systems ended talks without a deal in 2007. The failed negotiations and the for-profit takeover of the formerly Catholic hospitals prompted Ascension to launch a joint venture with Oak Hill Capital Partners, a private-equity firm, to acquire Catholic hospitals (Feb. 21, p. 6).