Why the feds block some hospital marriages—and bless others
It's been five months since federal antitrust regulators threw cold water on the marriage between Advocate Health Care and NorthShore University HealthSystem, dashing hopes of creating one of the biggest hospital networks in the nation.
Will Presence Health and Ascension, respectively the largest Catholic hospital systems in Illinois and in the U.S., succumb to the same fate? It's not likely, experts say.
On Tuesday, Chicago-based Presence and St. Louis-based Ascension announced that they plan to merge. Presence would be owned by Ascension, but operate in a joint venture called AMITA Health, which Ascension shares with Adventist Midwest Health. Presence still plans to sell two downstate hospitals to OSF HealthCare. The network's remaining hospitals, along with AMITA, would create a 19-hospital system.
Even combined, Presence and the joint venture AMITA Health still would have less Chicago-area market share than Advocate, the largest hospital network in Illinois. That's based on 2015 net patient revenue, according to Minneapolis hospital analyst Allan Baumgarten.
Here's another selling point. Presence and Ascension's local suburban hospitals take on more poor patients than rivals and other large systems. At Presence, for example, about 27% of the system's net revenue in 2016 came from Medicaid, the government health insurance program for the poor and disabled, a financial statement shows. For Advocate, that was about 14%.
Mark Frey, CEO of AMITA, which is based in northwest suburban Arlington Heights, Ill., and Mike Englehart, who leads 12-hospital Presence, aren't concerned they'll trigger an investigation by the Federal Trade Commission.
"When you look at the footprint of the organization, you've got competition everywhere," Frey said. "No part of this system is dominating parts of the market."
Englehart added that Presence and AMITA are also big providers of behavioral health services and have complimentary, rather than overlapping, service areas.
A FTC spokeswoman declined to comment. Agency officials thwarted the Advocate-NorthShore union over concerns that a combined system would command about 60% of hospital services in the northern suburbs and lead to higher prices for patients. Advocate and NorthShore countered that their union would cut costs.
Deals between Chicago-area health systems have been ramping up as hospitals look for ways to share resources and talent while lowering expenses. Talks between Presence and AMITA gained steam at the end of 2016.
"We think that the model as it stands right now is unsustainable, and we need to continue to evolve and meet consumers where they want to be treated," Englehart said.
He's been hustling to turn around financial losses since arriving at Presence in 2015. Meanwhile, Frey has been bulking up AMITA's outpatient facilities to provide cheaper, more convenient services for patients.
Englehart said there won't be "dramatic changes" at either Presence or AMITA after the merger. But the bigger system will look for ways to further reduce costs. It's not clear if that would include layoffs.
Should the systems win regulatory approval to unite, Frey will remain chief of AMITA, while Englehart will continue to oversee the Presence facilities and take on a systemwide role. He would report to Frey. Presence facilities eventually would take on the AMITA brand.
"Why the feds block some hospital marriages—and bless others" originally appeared in Crain's Chicago Business.
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