An antitrust smack down from Washington in the late 1980s has done little to dampen the urge among the three acute-care hospitals in Rockford, Ill., to pair up.
Deja vu in Rockford
Another merger sought for hospitals in Illinois town
Rockford Health System, parent of 282-bed Rockford Memorial Hospital, is exploring whether to be acquired by Peoria, Ill.-based OSF Healthcare System, the owner of 235-bed OSF St. Anthony Medical Center in Rockford.
Back in 1988 Rockford Memorial was set to merge with the city's third acute-care provider, SwedishAmerican Hospital. The U.S. Justice Department sued to block the deal, and a federal judge granted an injunction.
In 1997, SwedishAmerican explored a deal with OSF that never materialized.
Under a nonbinding letter of intent in the current negotiations, Rockford Memorial and OSF St. Anthony would become a northern Illinois and southern Wisconsin division of OSF, which has five other Illinois hospitals and one in Michigan. OSF St. Anthony President and CEO Dave Schertz and Rockford Health System President and CEO Gary Kaatz declined to be interviewed for this story, saying they wanted to wait until the process had progressed further.
The perennial dealmaking, though never consummated, seems to indicate the hospitals believe the market can't support all of them in their current configuration. “That's always been the classic conversation in this town,” said SwedishAmerican President and CEO William Gorski. But, he added, “The three of us are still here.”
Two of Rockford's hospitals—SwedishAmerican in 1996 and Rockford Health System in 2008—also flirted with Advocate Health Care, which is based in Oak Brook, Ill., and primarily serves Chicago and its suburbs.
Even though the federal antitrust enforcers declined to challenge the proposed SwedishAmerican-OSF pairing in 1997, deep cultural differences as well as certain “market dynamics” stalled that deal as well as the one explored with Advocate, Gorski said.
SwedishAmerican earlier this year entered into an affiliation with 481-bed University of Wisconsin Hospital and Clinics in Madison, which Gorski described as an attempt to engage physicians in a strategy to retain larger numbers of patients who tend to outmigrate. “People are looking at different models to drive market share,” he said.
Asked whether he thinks his competitors' deal will draw scrutiny from the Federal Trade Commission, which has taken the lead on hospital merger cases since the last time the government came to Rockford, Gorski said, “That'll be up to them. My suspicion will be they will take some notice of this.”
Gorski also declined to speculate on whether SwedishAmerican would voice opposition during the process required for approval by the Illinois Health Facilities and Services Review Board if the deal goes forward. “It depends on what it looks like and what the parsing out of services look like and the geographic location of those services.”
Rockford is a city of about 150,000 that's 90 miles northwest of Chicago and 75 miles south of Madison, Wis. It's home to the only hospitals in Winnebago County, population roughly 300,000, though 118-bed Beloit (Wis.) Memorial Hospital is about a half-hour's drive and 139-bed FHN Memorial Hospital in Freeport, Ill., just a little farther.
Nevertheless, in his 1990 opinion upholding the injunction blocking their merger, Chicago-based 7th U.S. Circuit Court of Appeals Judge Richard Posner dismissed the argument advanced by Rockford Memorial and SwedishAmerican that their hospitals competed in a 10-county swath of northern Illinois and southern Wisconsin, which the judge described as consisting of “Rockford and its hinterland.”
“There's a long history of failed attempts, but this is a different era,” said Paul Brand, executive director of the Employers' Coalition on Health, which contracts with providers on behalf of 140 employers in the area.
This is the era of the Great Recession, Brand said, and Winnebago County has the highest unemployment in the state, nearly reaching 20% at one point. “That's put serious pressure on the providers as well as us the purchasers.”
OSF St. Anthony lost $9.6 million on patient revenue of $858.1 million in the year ended Sept. 30, 2008, according to the online American Hospital Directory. Rockford Memorial, meanwhile, tallied a surplus of $4.6 million on $691.5 million in patient revenue for the year ended Dec. 31, 2008, according to the directory.
“This truly is an opportunity to strengthen care in the community,” Brand said. “Right-sizing of capacity, more rationalization of services—those are all good things. If we get consolidation and market power that drives up prices, those are not good things,” he said. “We're watchfully optimistic about this.”
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