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Advocate Aurora, Atrium Bet Megamerger Will Pass FTC Muster

Analysis  |  By Melanie Blackman  
   May 20, 2022

If the deal is approved, what will it mean for consumers, payers, and local markets?

Despite the regulatory crackdown on hospital consolidation, Advocate Aurora and Atrium Health are betting that federal antitrust watchdogs will allow their proposed megamerger to create a $27.1 billion nonprofit health system with operations in six states.

The systems believe that their consolidation—which would create a footprint across Illinois, Wisconsin, North Carolina, South Carolina, Georgia, and Alabama—would not be contiguous, and will nullify anticompetitive concerns.

"We respect the role of the Federal Trade Commission (FTC) to protect the best interests of consumers, and as such, expect that they will want to carefully review our proposed combination," an Advocate Aurora spokesperson said in an email exchange with HealthLeaders. "Given the geographic separation of the combined entities, along with the fact that assets will remain within our respective organizations and states, we are hoping for a timely review."

The two systems also believe that the merger will result in better, more efficient care delivered at a lower cost to consumers.

"We are coming together to better serve our patients and communities with more access and better care at a lower cost, while addressing the root causes of health inequities," Advocate Aurora said. "We can expand access to key subspecialties via technology, extend the reach of our population health approach to improve outcomes and affordability, and provide more opportunities to recruit diverse teams with the cultural competence to confront the toughest equity issues."

Advocate Aurora says it has controlled the growth of medical costs in its value-based plans with increases of 1%–2% while the national average is 6%–7%. Mortality rates have also fallen by 11%, team safety events are down 20%, and compliance with sepsis protocols is up by more than 50%.

"Together we can undoubtedly do more, be better, and go faster," Advocate Aurora said.

Past Failures

The proposed merger by Advocate Aurora, based in Milwaukee, Wisconsin and Downers Grove, Illinois, and Charlotte-based Atrium Health, follows a string of failed merger bids by both systems with rivals in their respective regions.

Advocate Aurora and Southfield, Michigan-based Beaumont Health agreed to call off their merger during the last quarter of 2020, after confronting resistance from physicians and community stakeholders.

Atrium and Chapel Hill-based UNC Health called off their merger during the first quarter of 2018 due to power struggles in their negotiations.

Additionally, Atrium successfully acquired Wake Forest Baptist Health in 2020 and  Floyd health system in Georgia and Alabama in 2021.

An Advocate Aurora spokesperson told HealthLeaders that the system's president and CEO, Jim Skogsbergh, reached out to Atrium President and CEO Eugene Woods about a merger after Atrium's Wake Forest acquisition.

"Both organizations come with nationally recognized expertise and long, established track records of service to their communities, which is critical for navigating and leading improvement in healthcare. Our complementary strengths, diverse experiences, and enhanced capabilities will enable us to reimagine health and well-being, advance health equity, and improve lives," the system said.

The consolidated system would operate with 67 hospitals and more than 1,000 ambulatory locations, and will be supported by 148,000 teammates, 7,600 employed physicians, 18,500 aligned and medical staff physicians, and 41,000 nurses.

Woods and Skogsbergh will serve as co-CEOs during the health system's first 18 months, after which Skogsbergh will retire and Woods will become the sole CEO.

New headquarters will be in Charlotte, where Woods is located, and Advocate Aurora said it "will continue to maintain a strong organizational presence in Chicago and Milwaukee."

"We are deeply invested in all of our communities and that’s one thing that won’t change. We've repurposed our Advocate Aurora corporate offices as collaboration spaces, having embraced a remote-first model in support of our goal of remaining a destination employer," the system said.

Strategy and Implications

A Kaufman Hall analysis found that while there were fewer hospital mergers and acquisitions in 2021, the deals that went through involved bigger health systems. The report also said that these trends are expected to continue this year.

In an interview with HealthLeaders earlier this year, John Washlick, shareholder at Buchanan Ingersoll & Rooney PC, shared the same sentiment. "Last year the deals were [less], but they were much bigger," he said. "I don't see a slowdown [in M&A this year] because the same reasons to be acquired or merging haven't changed in the healthcare system."

The megamerger between Advocate Aurora and Atrium is subject to regulatory review and will need to face approval from the Federal Trade Commission (FTC), which has been cracking down on anticompetitive mergers in the healthcare sector.

But is this transaction anti-competitive? Not if you look at the footprint.

"It's an interesting strategy," Michael Abrams, MA, managing partner of Numerof and Associates, told HealthLeaders.

The organizations have learned from past merger attempts that would give them a majority control of a given market, he said, "but they have figured out that they can do this kind of merger where the footprint is larger, where the markets involved are not contiguous. This is a loophole in the FTC's view of what's anti-competitive."

"As long as the FTC continues to take such a parochial view of what crosses the anti-competitive line, then we will continue to see more megamergers like this," Abrams said.

However, Abrams rejected the systems' claims that as a combined system they would achieve efficiencies and lower care costs.

"If research on the subject is any guide, patients can expect that neither the cost of care nor the quality will improve as a result of the merger, certainly in the short term," he said.

In the long-term, Abrams said that larger, consolidated systems with deeper pockets will attempt to stifle the efforts of non-traditional providers such as CVS and Walmart. Those systems can also block competitors at the political level, and more easily finance their own entry into aspects of the market, such as home health and ASCs, to chip away at competitors' business.

It could also affect smaller, local vendors, since larger organizations tend to want to deal with national vendors for massive discounts.

"I can't see this as offering anything for the local economies, patients, or consumers. I think at the end of the day, this is all about hospitals putting the squeeze on payers and extracting from them concessions in their contracts," he said.

"In the long term, what this means for patients is they can expect that Advocate Aurora will control the cost of care in their markets, which means that costs will rise, and quality will, at best, remain the same because they can," he added.

We won't know for certain what will happen with the merger until regulatory review brings approval or disapproval for the transaction. But Abrams said that what we do know is that this will be a milestone decision.

"If they let [the merger] go, then you can expect more of the same. Judging by [the FTCs] prior history, they've had this very narrow view of when they're going to step in. And this transaction, based on prior history, is going to fly through," he said.

“As long as the FTC continues to take such a parochial view of what crosses the anti-competitive line, then we will continue to see more megamergers like this.”

Melanie Blackman is a contributing editor for strategy, marketing, and human resources at HealthLeaders, an HCPro brand.

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