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Alexian, Adventist Midwest agree to form nine-hospital system

(This story has been updated with a correction.)

Alexian Brothers Health System and Adventist Midwest Health have signed a letter of intent to form a joint operating company that will oversee nine Chicago-area hospitals, making the combined network the third-largest in the state.

Yet, because both systems are parts of larger national healthcare organizations and have distinct religious identities, the agreement wouldn't reach the level of integration of a full merger.

The joint company would have its own governing board and combine the corporate operations of the smaller systems under one roof. Alexian CEO Mark Frey would stay in the top executive slot, and Adventist CEO David Crane plans to be executive vice president, the two officials said in an interview with Crain's.

“We both have far-flung parent organizations, yet here in Chicago, this is a large metropolitan area, and for us to be able to care well for our patients, scale is what's required,” Crane said. “And that's why this structure makes so much sense for us.”

The two systems would maintain separate ownership of assets and separate finances, and the as yet-unnamed operating company would handle long-term planning and strategy for the systems. It would also be able to issue debt, but only with the approval of Alexian and Adventist's parent companies: St. Louis-based Ascension Health, which acquired Alexian in 2012, and Adventist Health System, which is headquartered in Orlando, Fla.

Combining operations

The new network would bring together Alexian's four hospitals in the northwest suburbs with Adventist's five hospitals in the west and southwest suburbs. Combining operations would allow the newly formed system to save on back-office operations and big investments like information technology, as well as compete as the economics of healthcare shift toward models that emphasize good outcomes rather than volume of services.

Such models like accountable care organizations call on hospitals and other providers to be paid based on their ability to manage the health of large populations of patients. Adventist last year became part of Alexian's Medicare ACO, and both systems have similar contracts with commercial insurers.

The CEOs said another focus of the combined system will be to eliminate redundancies and reduce costs. Frey said the operating company will be looking to gain efficiencies in corporate functions, but not immediately in clinical operations.

“We don't have any plans to make any substantive reductions in workforce,” Frey said. “We're pretty much optimized for now.”

In general, joint operating agreements allow hospital systems with separate ownership to collaborate on certain service lines and other business activities. Adventist Health has been involved in such arrangements before. The system in 1996 formed Centura Health with Denver-based Catholic Health Initiatives, and the combined network now operates 15 hospitals in Colorado.

That deal served as a template for the Adventist-Alexian venture, Crane said.

The systems expect to have a final agreement inked by the end of July, said Frey. The arrangement must also pass muster with the Illinois Health Facilities and Services Review Board.

(Note: This story has been corrected to say that the combined Adventist-Alexian system would be the state's third-largest by number of hospitals.)

"Alexian, Adventist agree to form nine-hospital system" originally appeared on the website of Crain's Chicago Business.

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