Advocate-Aurora deal clears final regulatory hurdle

Regulators cleared the merger between Advocate Health Care and Aurora Health Care, paving the way for a 27-hospital system spanning Illinois to Wisconsin with $10.7 billion in combined revenue, the organizations announced Thursday.

The Federal Trade Commission and the chair of the Illinois Health Facilities & Services Review Board signed off on the proposed deal in February. The merger, which would unite comparably sized systems to form the country's 10th largest not-for-profit hospital system, got the nod from Wisconsin regulators Thursday.

"A team of leaders from both systems have developed a comprehensive integration plan that will allow us to accelerate our efforts on safety, health outcomes, consumer experience and cost while delivering value for the patients, communities and employers who count on us," Jim Skogsbergh, president and CEO of Advocate, said in a statement. Skogsbergh will be co-CEO of Advocate Aurora Health when the deal closes, which is expected to be April 1. He'll share the position with Dr. Nick Turkal, president and CEO of Milwaukee-based Aurora.

Advocate, which is based in Downers Grove, Ill., walked away from its plan to merge with NorthShore University HealthSystem in March 2017 after a protracted antitrust review, which influenced Advocate's decision to look for a partner that it doesn't have contiguous ZIP codes with.

There is less data on cross-market hospital mergers, but the available research suggests that combinations without market overlap have no significant price changes. If the merging hospitals were in the same state but at least 30 minutes apart, prices increased by about 7% to 10%, according to the study conducted by Northwestern, Harvard and Columbia universities.

While executives claim that scale is needed to thrive in the current healthcare landscape, running a far-flung organization can offset some of those gains. As a result, some systems are keeping their scope of expansion more regional, which will help them cope with waning inpatient volume and government reimbursement paired with rising labor, technology and compliance costs.

Scale will help them negotiate better rates with suppliers and payers and expand patient access through boosting investment in outpatient facilities and telemedicine. Crunching data on regional populations can also reveal the most profitable service lines, clinical quality performance, their current position with payers and the strength of their physician network.

"This circular loop of cutting costs isn't enough to keep up with inflation trends," Rich Bajner, a managing partner at the consulting firm Navigant, told Modern Healthcare when the Advocate-Aurora deal was announced in December. "A lot of organizations are thinking through a service-line approach, connecting the dots with caregivers in a local market. It provides a certain clarity around managing cost and growth."

Advocate Aurora Health will employ more than 3,300 physicians and nearly 70,000 associates and caregivers while serving about 2.7 million patients every year across more than 500 locations.

The board would be split equally between Advocate and Aurora and each system would retain their respective brands as well as their current headquarters.

In 2017, both systems saw their operating income trail off and expenses rise. Advocate reported $219.7 million of operating income on revenue of $6.23 billion in 2017, down from $263.6 million operating income on revenue of $5.59 billion in 2016. Its expenses increased to $5.97 billion on the year, up from $5.32 billion, according to Modern Healthcare's financial database.

Aurora's operating income fell to $247.4 million on revenue of $3.93 billion through nine months of 2017, down from $265.3 million of operating income on revenue of $3.77 billion over the same period the prior year. The company's expenses increased to $3.68 billion through that period, up from $3.51 billion.