NorthShore, Edward-Elmhurst complete merger

The merger of NorthShore University HealthSystem and Edward-Elmhurst Health was completed today to create the third-largest health system in the state, according to an announcement by Evanston-based NorthShore and Warrenville-based Edward-Elmhurst.

In talking about a deal for several years, discussions have "always been anchored on what this can mean for our communities," said J.P. Gallagher, president and CEO of the new system.

The system consists of nine hospitals—eight acute care hospitals and Linden Oaks Behavioral Health hospital in Naperville—some 300 ambulatory locations, 25,000 employees and 6,000 physicians. The statement said total revenue is expected to exceed $5 billion in the first year of operation. 

For the time being, it will be known as NorthShore–Edward-Elmhurst Health and will be governed by a board of directors with members representing NorthShore, Edward-Elmhurst Health, Northwest Community Healthcare and Swedish Hospital. It will be composed of north and south regions, with Gallagher leading the north and Edward-Elmhurst Health CEO Mary Lou Mastro leading the south.

Mastro said that for all the expanded access to care that the merger can bring, what differentiates the new system is its commitment to community-based care. Joining with NorthShore maintains the community care but opens expanded access to a number of services, she said.

At the start of the merger, the two systems have put up $100 million each in community investment funds to be used in the north and south regions. Gallagher said he envisions each $100 million fund will seed roughly $10 million a year in investment in local community organizations. The system will likely announce the first community spending in the coming weeks, he said.

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The combo makes sense in the moderately consolidated Chicago-area hospital market, dominated by Advocate Aurora Health, Northwestern Medicine and Amita Health, because "there's nowhere else for them to go," says Jordan Shields, managing director at Chicago-based investment banking firm Juniper Advisory. NorthShore, after having recently added Northwest Community Hospital in Arlington Heights and Swedish Hospital in Chicago, is relatively "landlocked," Shields says, and Edward-Elmhurst had few other growth opportunities around them.

In addition, Shields said, it might have been hard for either system to find an outside, national healthcare system to become part of. National systems, like highly respected academic centers, large not-for-profit systems or large for-profit hospital owners, have shown themselves leery of entering into the Illinois market, he said.

Both sides of the merger are strong, well-run systems, Shields said, but NorthShore's contribution to the deal is its notable, nationally recognized service-line strategy linking specific services to specific hospitals. Gallagher said that specialty care strategy will continue. 

"One of the areas where we think we can be most impactful is with what we call our 'institutes,' our high-end tertiary services," Gallagher said. "There's orthopedics and spine, there's neurosciences, cardiovascular services, personalized medicine and oncology. We both do a lot of that, currently, but the ability to make some investment and in some cases align what we're doing across geographies is very compelling."

For example, NorthShore's Glenbrook Hospital's free-standing cardiovascular institute will collaborate with Edward Hospital's "outstanding heart hospital," he said.

This story first appeared in our sister publication, Crain's Chicago Business.