Advocate Aurora announces merger
Advocate Aurora Health has announced plans to combine with North Carolina-based hospital system Atrium Health — creating one of the largest health systems in the country.
The new nonprofit organization would have 67 hospitals and more than 1,000 sites of care across Illinois, Wisconsin, North Carolina, South Carolina, Georgia and Alabama. Advocate Aurora now has 27 hospitals in Illinois and Wisconsin, after years of trying to grow through mergers and attempted mergers.
The new organization would be the fifth largest health system in the country by combined revenue, which is expected to top $27 billion, said Eugene Woods, Atrium president and CEO.
“This next step in the history of Advocate Aurora is one we couldn’t be more excited about,” said Advocate Aurora President and CEO Jim Skogsbergh, in an interview. “We continue to believe, frankly, the challenges we face in health care — whether they be the workforce shortage, or costs or health equity — they are not local problems. They are national problems. They require a larger footprint to address. This gives us a larger footprint to do that.”
Advocate Aurora and Atrium plan to form a joint operating company to be called Advocate Health, though Atrium’s hospitals would keep the Atrium name, Advocate’s Wisconsin hospitals would keep the Aurora name, and its Illinois hospitals would still be called Advocate. As part of the union, no money would change hands, and existing assets would remain in the states where they are now.
The deal is expected to close this year, pending regulatory approval, Skogsbergh said.
Skogsbergh and Woods told the Tribune their systems share a common goals of quality and affordability. Together, the systems will be able to better focus on improving care and translating medical research into practice, Woods said.
The fact that the two systems are geographically distant won’t hinder attempts to improve on quality and costs, given how digital the world has become, Skogsbergh said.
“Bringing together two organizations that, frankly, see the world the same way and think that collaboration is key to better serving our communities and driving down costs and addressing health equity, that’s what this is about, finding like-minded organizations regardless of geography,” Skogsbergh said.
In many cases, researchers have found that hospital consolidation results in higher prices for insurance companies, and those costs can be passed along to consumers through higher premiums and other payments. But Woods said Atrium was able to save about $147 million through better purchasing and use of infrastructure after its merger with North Carolina-based Wake Forest Baptist Health in 2020. Advocate Aurora also noted that it has saved taxpayers $258 million since Advocate and Aurora merged, through the Medicare Shared Savings Program, in which organizations that save Medicare money while delivering quality care can share in some of that savings.
“We really anticipate putting our platforms together will drive significant savings for both organizations, and I think that contributes to more affordable care,” Woods said.
The new Advocate would have headquarters in Charlotte, though workers at the current headquarters in Downers Grove and Milwaukee would not be expected to move, Skogsbergh said. Many of those workers are already remote, and it’s not expected that anyone will be laid off because of the deal, Skogsbergh said. In fact, leaders expect the combination will lead to 20,000 additional jobs, though they couldn’t immediately say how many of those will be in Illinois.
Skogsbergh and Woods plan to serve as co-CEOs for the first 18 months until Skogsbergh retires. Woods would then become the sole CEO.
The new organization would aim to become carbon neutral by 2030 and plans to pledge $2 billion toward addressing the root causes of health inequities.
The announcement comes after years of mergers and merger attempts by Advocate. Hospitals in Illinois and across the country have been expanding through mergers and acquisitions as they attempt to gain economies of scale, reach more patients and adapt to changing technologies. Hospitals often say they hope to improve care and affordability by merging, though such deals also often increase their bargaining power with insurers.
In early 2017, Advocate walked away from a 2 ½-year bid to merge with NorthShore University HealthSystem after a federal judge ruled in favor of the Federal Trade Commission, which had challenged the deal. Later that year, Advocate announced that it would merge with Wisconsin’s Aurora Health Care, creating Advocate Aurora Health.
In June 2020, Advocate Aurora said it was in discussions with Michigan health system Beaumont Health over a possible combination. Later that year, the systems ended those talks with the leader of Beaumont saying the system wanted “to focus on our local market priorities and the physicians, nurses and staff who provide compassionate, extraordinary care every day.”
Skogsbergh said he first approached Woods about a year ago about a potential union with Atrium.
In this case, Skogsbergh said he doesn’t expect the Federal Trade Commission to be very concerned about the deal, given how geographically far Advocate and Atrium are from one another.
“These markets don’t overlap at all,” Skogsbergh said. “The geography probably gives the FTC relief . ... Might they come back and ask some additional questions? Perhaps, but we’re prepared to answer those.”
Even if it doesn’t end up challenging the deal, the FTC may want to take a careful look at it, said Amanda Starc, an associate professor of strategy at Northwestern University’s Kellogg School of Management.
She said it’s possible the union could help the systems save money, but it’s also possible it might allow them to increase prices. She said there’s no evidence that hospital combinations lead to better quality of care for patients.
“I think we’ve seen increased skepticism over time of hospital mergers, even sort of cross-market mergers, so my guess is they’ll want to look at this closely,” Starc said of the FTC. Still, she said it seems like it would be “a hard case to make” to challenge the deal.
Nathan Ray, a senior partner with consulting firm West Monroe which has worked with Advocate in the past, also said the deal may be less likely to cause the FTC angst, considering the distance between Advocate and Atrium. Even when there’s a distance between health systems, combining can help those systems to purchase certain items at lower costs and become more efficient in their administrative operations, he said.