NorthShore to buy Northwest Community Healthcare in suburban Chicago deal

Another health network is bidding farewell to its independence. Arlington Heights-based Northwest Community Healthcare has agreed to join five-hospital NorthShore University HealthSystem.

Wednesday’s merger announcement comes at a particularly challenging time for hospitals and clinics, as COVID-19 drives up costs and drains revenues. But even before the pandemic, community hospitals were under pressure to address mounting operating costs and curb overall medical spending.

While the deal—the terms of which were not disclosed—gives Northwest Community access to capital and economies of scale, Evanston, Ill.-based NorthShore gains tighter control over the northwest suburbs, where many patients have access to well-paying insurance. It could also mean greater leverage over insurance companies in a market dominated by large academic medical centers and expanding regional chains.

“This is a market that is not standing still,” NorthShore CEO J.P. Gallagher said in an interview. “While it’s hard to predict exactly what will evolve, I think every organization is focused on what allows it to continue fulfilling its mission—to continue to ensure it’s an attractive place for patients, physicians and employees.”

Gallagher said NorthShore plans to make “significant financial commitments” in support of Northwest Community, investing in the network’s Arlington Heights hospital and surrounding outpatient clinics. It also aims to open additional sites of care. He would not specify the amount of investment.

“It has gotten increasingly hard for (independent hospitals) to be viable in this consolidating hospital market—not just here in Chicagoland or Illinois, but in markets throughout the country,” said Anthony LoSasso, a professor at DePaul University who specializes in healthcare economics.

In fact, NorthShore in January finalized its acquisition of 312-bed Swedish Hospital and its related entities, including a physicians group and medical fitness center. Little Company of Mary Hospital & Health Care Centers recently joined OSF HealthCare, a 13-hospital network based in Peoria. And four South Side hospitals tried to combine into a single system, but the deal was called off earlier this year due to a lack of government funding.

"If you’re a one-off hospital in an environment where insurers want to squeeze providers, it’s those little one-offs that get the big squeeze because they’re expendable," LoSasso said.

Northwest Community CEO Steve Scogna, who will continue to lead the single-hospital system after it becomes part of NorthShore, said the leaders are still evaluating how they'll work together. He did not address whether there would be cuts.

But pressure to make cuts could intensify if COVID-19 continues to strain hospital finances. As many independent hospitals in the Chicago area struggled to manage an influx of COVID patients and a shortage of personal protective equipment, Gallagher said Swedish Hospital benefited from the support of the larger NorthShore system.

NorthShore and Northwest Community are among hospitals that have imposed pay cuts on some employees amid the pandemic.

But Northwest Community had been looking for a new model since before the coronavirus started spreading. Scogna said serious conversations about the network’s future started up again in 2018. It also had searched for a large hospital network partner five years earlier.

The network's net income fell 8 percent to $7.7 million in 2019 as both expenses and revenues increased 5 percent, according to the company’s audited financial statements.

Meanwhile, at NorthShore, revenues rose 8 percent to $2.2 billion and expenses rose 6 percent to $2.1 billion. However, the company’s net income fell a whopping 91 percent to $14.7 million, primarily due to a goodwill impairment charge of $116.4 million.

Pending regulatory review and approval, NorthShore and Northwest Community expect to close the deal by the end of the year.

This story has been updated to clarify that Scogna did not address whether the merged system plans workforce cuts.