NorthShore University HealthSystem has agreed to acquire Swedish Covenant Hospital in Chicago and its related entities, as cost pressures and shifting models of delivering care have made it nearly impossible for the North Side community health network to stay independent.
Swedish Covenant had been in talks with at least six potential buyers since last year, CEO Anthony Guaccio said. Meanwhile, Evanston, Ill.-based NorthShore has looked for opportunities to expand and complement its four-hospital network since plans to merge with Advocate Health Care fell through in 2017, CEO J.P. Gallagher said.
The deal—terms of which are not disclosed—could provide the scale needed to compete in a market dominated by expanding faith-based chains and large academic medical centers.
Guaccio will oversee the Swedish Covenant arm of NorthShore, reporting directly to Gallagher. The leaders would not say whether Swedish Covenant entities will keep their names, just that they plan to leverage NorthShore's reputation.
NorthShore is not immune to pressure to bring down medical costs. The network has looked for savings through a pediatric partnership with Advocate Children's Hospital and University of Chicago Medicine Comer Children's Hospital, as well as a specialty hospital strategy that centralizes different services at each of its four hospitals. The initiatives are on track to achieve the intended efficiencies, Gallagher said, adding that thinking more broadly about partnerships will continue to be critical for NorthShore's success.
At Swedish Covenant, with costs rising almost as fast as revenue, the health network has dug deep for investments, such as a $13 million overhaul of its emergency room and a new $1.5 million outpatient center. The deal with NorthShore provides an opportunity for stability and growth in and around Swedish Covenant Hospital, Guaccio said.
Swedish Covenant had $273.5 million in net patient revenue last year, and $27.7 million in net income, according to Modern Healthcare Metrics. Meanwhile, NorthShore's flagship hospital in Evanston had $1.5 billion in net patient revenue and $164.8 million in net income. Together, the health networks have more than 12,000 employees, including about 1,500 doctors.
Opening new ambulatory centers will continue to be a priority for the combined organization, with a senior-focused model debuting on NorthShore's Glenbrook campus in September. Clinics that cater to patients 65 and older are becoming more widespread in Chicago and beyond, as the population ages and Medicare-focused providers like Oak Street Health expand.
Under the deal, NorthShore would absorb Swedish Covenant Health's 312-bed community hospital in the Ravenswood neighborhood, as well as its physicians practice, Swedish Covenant Medical Group; medical fitness center Galter LifeCenter; fundraising arm Swedish Covenant Hospital Foundation; and managed-care organization Swedish Covenant Physician Partners.
Historically faith-based Swedish Covenant will no longer be part of the Evangelical Covenant Church. But Gallagher said NorthShore is paying down Swedish Covenant's pension obligations through the church. Additionally, it's making an undisclosed but "substantial" investment in Swedish Covenant's campus, including programs, services and people, he added. An unknown portion of the infusion will be given to Swedish Covenant's foundation, which supports community programs that address violence prevention, homelessness and more.
Leadership is still evaluating where it can cut redundant functions like the organizations' respective captive insurance companies, for example. At least for the moment, Swedish Covenant Hospital will continue offering the same clinical services, rather than being assigned one or two specialties like NorthShore's other hospitals. But joining NorthShore's network has the potential to cut wait times for Swedish Covenant's specialists from a few months to a few days, the leaders said.
Since taking over as CEO in November 2017, Gallagher said he's known growth was critical for NorthShore's future.
"This market is not standing still," he said, noting he was focused on doing a deal that enhanced NorthShore's community-based system identity, rather than transforming it into a regional chain.
Gallagher said he hopes there will be more deals in the future, but they'll have to meet that same criteria, ensuring "NorthShore's commitment at the local level only gets stronger."
The transaction is expected to be completed by year-end, pending regulatory approvals.