Advocate-Aurora Merger Latest in Healthcare Consolidation Trend

Jack O'Brien, December 5, 2017

Deal likely to steer clear of FTC pitfall that foiled Advocate's prior merger plans.

Advocate Health Care and Aurora Health Care announced plans Monday for a merger that would create the 10th-largest not-for-profit health system in the country.

The proposed deal would serve as a “50-50 merger” between Chicago-based Advocate and Milwaukee-based Aurora, with no job layoffs expected, the companies said. Should the deal receive regulatory approval, the merged system, which would go by the name Advocate Aurora Health, is projected to have a total operating revenue of about $11 billion and employ 70,000 people across hundreds of facilities in Illinois and Wisconsin, including 27 hospitals.

The announced merger continues a trend among health systems to merge, buy, or sell. Since the Tenet-Vanguard merger in 2013, a $4.3 billion acquisition, large-scale mergers between health systems have become routine to keep pace with an increasingly competitive and consolidated industry.

As health systems and hospitals adjust to the push for value-based care, alternative payments and accountable care organizations, systems with less experience and knowledge have to factor in how they will achieve those goals.

The attraction of corporate consolidation

David Chou, Chief Information and Digital Officer for Children’s Mercy Kansas City, says healthcare organizations are pursuing mega-merger deals in order to maintain relevance. A company used to need $6 billion to compete, a number that has since ballooned to $10 billion, he says.

Companies have pushed toward consolidation also to achieve scale, which can enable cost-reduction and improve financial viability. Chou says healthcare companies ultimately aim to mirror the “classic Kaiser model,” referencing industry giant Kaiser Permanente of Oakland, California. In 2016, Kaiser Permanente’s total operating revenue was $64.6 billion.

Jack O'Brien

Jack O'Brien is an associate editor at HealthLeaders Media. 

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