Atrium Health, Advocate Aurora Health merger suffers setback in Illinois

The planned merger of Atrium Health and Advocate Aurora Health, one of the biggest proposed hospital mergers in years, has run into a setback in Illinois.

The Illinois Health Facilities and Services Review Board initially voted against the deal, but then agreed to consider the planned merger at a later time, The Chicago Tribune and other Illinois media reported Tuesday. The board said it would allow both systems to submit more information.

The board’s approval is a necessary step for the deal to move forward. Advocate Aurora operates in Illinois - it’s the largest health system in the state - and Wisconsin.

The two organizations initially hoped to complete the deal Sept. 30, the media outlets reported, so even if the merger is approved, it could take longer than anticipated.

Atrium and Advocate Aurora initially announced their plans to merge in May and form a system with a combined $27 billion in annual revenue. Federal and state regulators must approve the deal.

• Read more: These proposed hospital mergers and acquisitions collapsed. Here’s why.

In a statement late Tuesday afternoon, Advocate Aurora indicated it was surprised by the board's action but still expects the deal to be approved this year.

"State statute requires the Review Board to approve all Certificate of Exemption applications that staff have deemed complete," Advocate Aurora said in a statement. "Our application was deemed complete last month, thus, we were surprised by today’s delay and will work with the Review Board to address their questions. Please know we continue to work with other appropriate regulators and remain confident our combination is still on track to close by the end of the year."

Atrium Health said Tuesday the system will continue to work with regulators.

"There are a number of regulatory bodies that have asked for information to review related to Atrium Health’s proposed strategic combination with Advocate Aurora Health. The board in Illinois has indicated it wants to see additional information, and we will continue to share appropriate information," Atrium Health said in the statement

If the deal ultimately gains approval, the merged system would operate 67 hospitals with more than 1,000 ambulatory sites in six states, with more than 148,000 employees.

The systems said the new organization would be named Advocate Health, but the systems would continue using the Atrium and Advocate Aurora brands in their local markets. The organization would be based in Charlotte, N.C., but the systems said the merged system would maintain a strong presence in Chicago and Milwaukee.

The Federal Trade Commission has moved to block some hospital deals over the last year. However, the FTC has typically objected to deals involving health systems that are operating hospitals in the same markets.

With the Atrium-Advocate Aurora planned deal, the two systems operate in different parts of the company, prompting some analysts to project the merger would win federal approval. Atrium Health is based in Charlotte, N.C. and serves North Carolina, South Carolina, Georgia, and Alabama, while Advocate Aurora serves Illinois and Wisconsin.

If the deal wins approval, analysts have said it could spur other health systems to pursue similar mergers. Systems could look for merger partners in other markets to gain size and scale, while avoiding the potential regulatory scrutiny involving deals between competitors in the same markets.

Some critics have objected to the deal, saying it would lead to higher costs for patients.

SEIU Healthcare, which represents more than 90,000 union workers in the midwest, said in August it opposed the deal. The union said it wanted assurances that hospitals in the Chicago area wouldn’t be shuttered to preserve profits.

“SEIU Healthcare asserts that the proposed Advocate Aurora Health-Atrium Health merger risks access to affordable healthcare across Chicagoland and in medically underserved communities,” the union said in an Aug. 24 letter to the Illinois board.

North Carolina State Treasurer Dale Folwell said in May that the Atrium-Advocate Aurora the deal is an “ill-advised merger” and urged federal and state officials to look at it closely.

“North Carolina, already home to one of the country’s top five metropolitan markets with the highest level of health care concentration, is no stranger to the ill effects of consolidation,” Folwell said in a statement. “Research consistently shows mergers and acquisitions do not deliver on hospital executives’ promises, but instead trigger higher costs, reduced access and the same or lower level of care.”

In announcing the merger, Atrium and Advocate Aurora pledged to invest heavily in improving care to underserved communities. Leaders of the merged system pledged to spend $5 billion to address health equity and other community needs.

There have been fewer hospital deals nationwide over the past year. Only 49 hospital consolidations took place in 2021, down from 79 the previous year. In the first six months of 2022, 25 hospital deals were announced, according to Kaufman Hall, the consulting firm.

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While there have been fewer deals lately, the transactions have been larger, and Kaufman Hall has said that could be a trend for the time being.

About two weeks ago, Trinity Health, based in Michigan, completed the acquisition of MercyOne in Iowa, a system with $3 billion in revenue. Trinity had jointly operated MercyOne with CommonSpirit Health, but reached an agreement in the spring to buy all of MercyOne’s assets.

Analysts project the pace of hospital deals to pick up eventually, although the economic downturn and the possibility of a recession could complicate deal-making.

Michael Abrams, a managing partner of Numerof & Associates, a consulting firm, is an outspoken critic of hospital mergers. In a July interview with Chief Healthcare Executive, he said he fears that if regulators approve the Atrium and Advocate Aurora deal, it would trigger more mergers among large health systems. He is hoping the FTC will oppose the deal, but he’s skeptical that will happen since they systems aren’t in overlapping markets.

“If this does not provoke pushback from the FTC, ultimately that opens the door to a continuing series of mega-mergers that are carefully designed to not have overlapping markets,” Abrams said in July.

This story has been updated with statements from Atrium Health and Advocate Aurora Health.