Advocate, NorthShore Deal Would Create 16-Hospital System

The successful merger of two Chicago-area healthcare organizations would result in the 11th largest not-for-profit healthcare system in the country and serve 3 million people.

Illinois-based Advocate Health Care and NorthShore University HealthSystem have announced that they intend to merge.

If approved, the merger of Advocate Health Care's 12 Chicago-area hospitals with smaller NorthShore University Health System's four hospitals, announced on Friday, would serve 3 million people and create an organization said to be the 11th-largest not-for-profit healthcare system in the country.

The new entity, to be named Advocate NorthShore Health Partners, will enable leaders of the 16 hospitals to "for the first time really start thinking about population health, to see what's efficacious and what's not; what is unnecessary variability in care and what really works the first time… and translate that to remove duplication and take out things that are not efficacious," said Mark Neaman, NorthShore's president and CEO.

That will make a difference not just for healthcare in Chicago and Illinois, but will teach lessons that "hopefully will be able to contribute to the good of the country as well," Neaman said in interview Friday.

NorthShore, which has 900 physicians, is on a single electronic health record platform. But at Advocate, with 6,300 doctors, "the hospitals are on Cerner, and the practice group offices across the system are on multiple platforms, everything from paper to other multiple systems like NextGen, Meditech," Neaman said.

The intention is to get all parties on the same EHR system. "By having an interconnected system, we can do a much better job, including in our handoffs, between hospitals and doctor's offices, and home care and nursing homes," Neaman said.

Both organizations have strong black ink balance sheets, which should enable a smooth transition, and any reductions in staff to eliminate redundancies would be achieved by attrition, Neaman says.
"This is not a crisis or a fire drill. We have the luxury of time to improve our costs and our services because we're both strong organizations today."

Advocate brings in about $5 billion in revenue annually while NorthShore had a top line revenue figure of $2 billion in 2013. Advocate has more than 3,300 beds compared with NorthShore's 832. Advocate has 35,000 employees; NorthShore 10,000.

In 2013, Advocate had 165,524 inpatient admissions, 4.9 million outpatient visits, and 478,000 emergency department visits; NorthShore had 38,395 inpatient, 1.06 million outpatient and 125,000 emergency department visits.

While Neaman says both organizations score well in Medicare's three healthcare reform penalties or incentive programs, such as readmissions, hospital-acquired conditions, and value-based purchasing payments, "we're not resting on our laurels. We have got to do a better job in the future."

Asked whether the merger will create a "systems of excellence" delivery model in which service lines will be moved away from some hospitals in order to create specialization centers, Neaman says that's already happened to a large extent, especially in orthopedics and cardiac surgery.

"I think the opportunity for us going forward is to think even more broadly and strategically of how we might even enhance that to a greater degree. We need to this well, strategically and carefully."

A potential challenge will be finessing physician alignment. NorthShore has a full-time employed faculty practice group while Advocate uses "clinical integration of independent physicians. As Neaman describes it, "We'll be pushing the NorthShore model toward Advocate's and the Advocate model toward NorthShore's."

How they'll do that is the question. "You have to respect culture," Neaman says. "We don't see that either one of these models will be exclusive. Different physicians are going to be wanting to be in one of those organizations as opposed to the other."

Benefits of Merging
Nate Kaufman, a hospital system consultant, says the Chicago merger "reaffirms my belief, that others don't necessary share, that you either merge or you don't merge" in order to achieve lower costs and higher value.

With "loose affiliations," which some systems tend to favor, "a single or smaller hospital system like NorthShore in a large market can't provide population health because they don't cover the whole geographic region."

The second benefit of a full-on merger as opposed to an affiliation is the bargaining power a larger system has in health plan and other payer negotiations.

"I'm in the middle of the biggest fight of my life right now between Blue Cross and a health system. It's brutal," Kaufman says. "If you're just a small health system and you're not geographically indispensable, you will not get any kind of material rate increases in this new environment."

What Critics Say About Mergers
Some observers have postulated that too many healthcare system mergers and acquisitions may turn the cost of care in the opposite direction from what was intended by the Patient Protection and Affordable Care Act.

Ashish Jha, MD and Thomas Tsai, MD, of the Harvard School of Public Health wrote in the Journal of the American Medical Association that when organizations get larger and more powerful, they can "extract higher prices from private payers," driving up the cost of care.

They contend that although hospitals say mergers will improve outcomes through increased volume, "…the volume-outcome relationship varies widely across conditions and outcomes, with the largest benefits occurring among a small number of technically difficult surgical interventions…"

Hospitals say their mergers will lead to better care integration, especially for the chronically ill, through meaningful data sharing and streamlined handoffs and care transitions.

Jha and Tsai maintain, however, that "these processes can be achieved through other mechanisms, such as participating in health information exchanges."

Neaman insists that consolidations of purchasing through the supply chain will result in "a couple of percentage point improvements and millions of dollars of additional resources." Additionally, he emphasizes that reducing variation and inefficiency thorough the use of data will also result in driving costs out of the system.

As an observer of healthcare system amalgamations around the country, Kaufman says that he's seen price points go in both directions after such agreements.

"Two things can happen. One is for these hospitals with huge market share to irresponsibly demand higher rates, and that's going on. But in other cases… hospitals with large market share can actually use their money to invest in ways to reduce cost per episode and utilization. Advocate has been a leader in that area, focusing on improving cost per episode."

Leadership Roles
Mark Neaman and Jim Skogsbergh will be co-leaders of the new organization for two years, after which Skogsberg is slated to head the combined system. Neaman says he's "excited about the next two years. What happens after that will only be good." He said Skogsbergh is "a national leader and will continue to do a great job leading the new organization."

According to a joint system press release issued Friday, the agreement must receive approval from the Federal Trade Commission, the state of Illinois, and the United Church of Christ. Advocate is affiliated with the Evangelical Lutheran Church of American and the United Church of Christ.

A review of the debt structures of the combined organization will be conducted over the next several months and the deal is expected to be finalized in early 2015.