One year after its merger, Advocate Health is already thinking about mergers and acquisition opportunities for growth.
Advocate formed in December 2022 when Downers Grove, Illinois- and Milwaukee-based Advocate Aurora Health and Charlotte, North Carolina-based Atrium Health merged, creating a more than $27 billion system. It employs 150,000 people across 67 hospitals and more than 1,000 care sites.
Related: How Advocate's Gene Woods is tackling health equity, staffing
In June, Gene Woods, who led Atrium, will take over as the sole CEO at Advocate, at which point Advocate Aurora's Jim Skogsbergh will retire. The two leaders, who have been serving as co-CEOs since the merger, discussed next steps for Advocate at a Crain's Chicago Business event Wednesday morning in Chicago.
Here are five takeaways from the event.
1. M&A is on the table
Healthcare providers will likely be under increased pressure to merge in the coming years, Skogsbergh said. He described Advocate as “geographically agnostic,” meaning the system is more focused on the organizational values, not the location, of its next potential partner.
“If there is an organization that shares our values—commitment to community benefit, commitment to excellence, to be a great employer—those are the organizations that we will absolutely invest time in,” Skogsbergh said. “It may not advance to the end of the line, but if it does, those are the organizations we would prioritize.”
The Advocate deal sparked plenty of interest about cross-market transactions, which some industry watchers say is an effective way to avoid regulatory blocks related to market overlap. Advocate operates in six states in the Midwest and the Southeast.
“Big is not necessarily bad,” said Skogsbergh, who noted he will still be involved in Advocate’s future deals talks after his retirement.
2. There is more integration work to do
Advocate made numerous leadership changes post-merger, including the formation of a 25-person executive team. Most recently, Advocate named Brad Clark as its chief financial officer.
It also combined its institutional review boards to create a more efficient process for clinical trials. Advocate is standardizing the financial and human resources platforms, a process that will take two or three years to complete, Woods said.
“The first year is always foundational,” Skogsbergh said. “A lot of it was getting our house in order [and] being clear about how we are going to measure some things. Once you’ve got that in place, now you plant your flag, and you start marching.”
3. Efficiency has improved
In 2023, Advocate’s cost per case has gone down, Skogsbergh said. “We have accomplished every objective we set in our first year,” he said.
The system plans to double its “synergy targets,” Skogsbergh added, although he did not offer specific figures or a time frame.
Health system executives often claim mergers will help reduce costs, in part, by consolidating health systems’ back-office departments. Still, related research has shown the efforts produced mixed results.
Advocate expects to report a 2% operating margin for the fiscal year ended Dec. 31, Skogsbergh said. Advocate is on pace to generate more than $30 billion in annual revenue. The health system reported operating income of $79.4 million on $22.83 billion in revenue during the nine-month period ended Sept. 30, according to its unaudited third-quarter financial statement.
4. Health equity plans are in flux
Health equity has been one of executives' biggest talking points in forming Advocate, and the system plans to launch a national center for health equity in Milwaukee next year. Details on the center's location and a construction timeline have not been released.
At Wednesday’s event, Woods noted Advocate’s recent work to embed behavioral health resources into primary care offices on Chicago's south side, a historically underserved area.
“[There’s] no question we could go faster. There’s no question we need to go faster,” Skogsbergh said.
5. System is still invested in Midwest, despite new HQ
While Advocate is based in Charlotte, the health system will not lose its focus on Midwest operations, the CEOs said.
“Our headquarters is where my laptop is and my phone is,” Skogsbergh said. “We’re not moving people to Charlotte. We’re not taking jobs from Chicago and moving them to Charlotte.”
Given that Woods is set to take over, Charlotte is the appropriate locale for the headquarters, Skogsbergh said.
