Mercy, Rockford Health creating system in Illinois, Wisconsin, and other news

Mercy Health System, a three-hospital, not-for-profit based in Janesville, Wis., and Rockford (Ill.) Health System, a two-hospital not-for-profit, will merge to create a new system serving northern Illinois and southern Wisconsin.

Though the two organizations will keep their respective names, their five combined hospitals, over 550 physicians and 80 other facilities have been folded into a new parent company, yet to be named. Mercy Health President and CEO Javon Bea will become CEO of the new entity while continuing to serve as Mercy's CEO. Gary Kaatz, Rockford's president and CEO, also will retain his current title.

No cash is being exchanged in the deal, which took place Oct. 23 and was announced the following week. Bea told Modern Healthcare that the two systems will complement each other, since Rockford's regional children's hospital has pediatric specialties that Mercy lacks, while Mercy brings a managed-care insurance product and a physician partnership model to the table. —Adam Rubenfire

Hospital Sisters Health System, a 13-hospital network headquartered in Springfield, Ill., barely kept its head above water in its most recent fiscal year, but executives said investments in physician integration partially ate away at the operating surplus.

The system operates hospitals and physician practices in Illinois and Wisconsin. The audited financial statement shows that its operating margin in fiscal 2014, ended June 30, was 0.8%—down from a 1.1% margin posted in 2013.

Admissions have declined 7% during the past three years, which executives attributed in part to Medicare's two-midnight rule. The policy essentially says that hospitals can only bill Medicare for inpatient services if an admitting physician expects a patient will have to stay in the hospital for at least two midnights.

The system's operating surplus dropped 22.7% from $21.6 million in 2013 to $16.7 million in 2014. Revenue rose 4.1% to $2.09 billion. However, strong investment returns helped bail out the system's sluggish year, a trend seen at many other not-for-profits. Total surplus increased 36% to $228.3 million. —Bob Herman