As­cen­sion looks to Chicago

Alex­ian deal would be area’s lat­est con­sol­i­da­tion

Modern Healthcare - - The Week In Healthcare - Me­lanie Evans

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).

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