The 2018 integration between Downers Grove, Illinois-based Advocate Health Care and Milwaukee-based Aurora Health Care went well, which is a good sign going forward, said Paul Keckley, an industry consultant. “I heard it went well and cultures meshed. A lot of that was because Advocate pushed its accountable care organization early on and that was an area Aurora wanted to get more into,” he said, noting the leadership of Advocate Aurora CEO Jim Skogsbergh. “Although cultures never mesh completely, attrition was below normal, so that was a good result.”
Advocate Aurora seems to treat their employees well, said Norell, noting the recent minimum wage increases.
The general consensus is that the Federal Trade Commission will not challenge the merger, but the regulatory environment is changing.
The FTC and Justice Department look to broaden the scope of their merger analyses, emphasizing labor market impacts and potentially restructuring how markets are defined.
“(Regulators) may come back with a new view of what constitutes a market,” Keckley said. “The FTC and DOJ may redefine markets regionally rather than locally. That seems to be the direction they are going.”
Deals such as Advocate Aurora and Atrium are exploiting a loophole in the FTC’s definition of anticompetitive impact, said Michael Abrams, managing partner of the consultancy Numerof & Associates, noting the agency’s general approval of cross-market mergers.
“If they stick with the logic they use now, there’s no reason to block this merger,” he said.
State and federal regulators will likely review a lawsuit filed last week by a self-insured pharmacy against Advocate Aurora, alleging the hospital system used all-or-nothing contracts to force Wisconsin employers to pay inflated prices and constrain competitors. Advocate Aurora allegedly charges more than its competitors for routine services like a colonoscopy with a biopsy, which costs $10,700 at Advocate Aurora compared with $4,700 at Froedtert, according to the lawsuit filed in a federal Wisconsin court. Advocate Aurora denied the allegations.
“Even if (the merging systems) don’t compete directly for patients, they do compete for insurance plans for employers that operate in different places—even more so when you have a mega-merger,” said Barak Richman, a law professor at Duke University. “There is revenue to be gained from scale via bargaining power.”
Both costs and prices tend to go up after hospitals merge, said Dr. Dale Owen, CEO of Tryon Medical Partners, an independent physician group in the Charlotte, North Carolina, made up of former Atrium physicians who successfully sued to break away from the system in 2018.
“Hospital administrators are running a business and doing a good job with the tools they have been given,” he said. “The end result is a product that is not beneficial to the general public.”
As for the lawsuit, Atrium likely knew about it as they discussed merger plans with Advocate Aurora, Owen added.
“It is concerning that Atrium would’ve pulled the trigger on a deal if they knew this was coming. It is also concerning if they didn’t know,” he said.
Advocate Aurora and Atrium executives said their scale will allow them to improve recruitment, boost investment in data analytics and digital consumer-facing infrastructure, as well as cut costs for back-office services. In announcing the deal, the organizations pledged to spend $2 billion to address the root causes of health inequities and become carbon neutral by 2030.
“There is a desire for these deals to yield cost savings to the patient, but yielding cost savings to the patient is not something they are designed to do,” said Nathan Ray, a partner at consultancy West Monroe who specializes in mergers and acquisitions. “Their value is in the payback to the community—having the ability to hire clinicians who are missing from the market in that are valuable to you or buying capital equipment that keeps you relevant.”
Advocate Aurora and Atrium do not plan to change compensation or benefit programs, nor combine medical groups “in the immediate future,” according to an internal memo obtained by Modern Healthcare that Advocate Aurora sent to its employees. While the combine entity plans to add 20,000 jobs and will not reduce its overall workforce, it noted in the memo that it is in a “dynamic industry and thus will continue to evaluate the most efficient and affordable way to meet the needs of our patients.”
Leadership needs to clearly explain the potential synergies and challenges of integrating large health system, said Leslie Solomon, a principal at the consultancy FMG Leading.
“No matter how closely aligned they are, the level of autonomy in the physician culture will always be a hard line,” she said. “They can be great strategic partners if they are included upfront, but it is almost impossible to make that up if they miss that opportunity.”
Advocate Aurora and Atrium would be structured under a new parent company, Advocate Health, and a combined governing board via a joint operating agreement.
The new entity will be structured similarly to the Advocate and Aurora deal, Skogsbergh said in an internal May 11 video obtained by Modern Healthcare.
“Simply put, here we go again—joining together not unlike Advocate Aurora did four years ago. One board of directors. One executive team,” he said.
Executives expect a “timely regulatory review” given the systems’ geographic separation and the fact that assets will remain with their respective organizations and states, the memo said.
Advocate would move its current headquarters in Downers Grove and Milwaukee) to Charlotte, which has a growing population. After the deal closes, Atrium CEO Eugene Woods would become CEO after an 18-month transition period. Skogsbergh plans to retire.
“They will have to address who is losing decision-making power and who is gaining decision-making power and why,” Solomon said.
Advocate Aurora and Atrium facilities would retain their respective brands in their local markets.
“These names: Aurora in Wisconsin, Atrium in the Southeast, are so strong and so powerful, and frankly (they have) a lot of influence that I think is going to be of great service to us. But that overarching name Advocate and what it means and connotes is pretty powerful,” Skogsbergh said in the video.
Advocate Aurora and Atrium may use that clout to extract higher rates from insurers, potentially increasing prices and premiums, policy experts said.
“They do use their size to get exclusivity with payers, which can lock out other community hospitals,” Newpoint’s Norell said.