Midwest Health Giants Advocate Aurora and Beaumont Look Into Merger

Two of the biggest hospital organizations in the Midwest, Beaumont Health and Advocate Aurora Health, are looking into a potential partnership that could eventually result in a merger.

“After approval by the boards of directors, both organizations signed a non-binding letter of intent. This paves the way to more detailed discussions regarding a health care system that would span Illinois, Michigan, and Wisconsin,” said Beaumont and Advocate Aurora Health in a statement.

“This is a unique opportunity to explore a partnership with a purpose-driven, like-minded organization,” said Advocate Aurora Health chief executive officer Jim Skogsbergh.

Executives at Advocate Aurora and Beaumont described the negotiations as in the early stages, but also acknowledged that the “partnership under consideration would allow both not-for-profit health providers to align and strengthen their goals of serving the needs of families, individuals, and communities throughout the Upper Midwest.”

Financial reasons for healthcare organizations to grow

Among the reasons, hospitals feel the need to grow is to more effectively negotiate with health insurance companies. While hospitals rake in billions of dollars from federal programs such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, healthcare providers are facing a loss of revenue as coronavirus-related unemployment increases and more Americans lose their health insurance and can’t pay their medical bills.

Beaumont Health president and chief executive officer John Fox observed, “The potential opportunity to leverage the scale and strength of a regional healthcare organization while remaining locally focused with a strong presence in Michigan as a major employer and leader is important to us.”

Advocate Aurora Health originally came into being through the merger of Wisconsin’s Aurora Health Care and Illinois-based Advocate Health Care. The executives of Advocate Aurora have indicated they plan to further expand their future footprint. A deal between Advocate Aurora with Beaumont would give the combined health systems an annual revenue of more than $17 billion.

CVS Health, which operates a chain of drugstores, bought Aetna more than a year ago. Aetna is a major drug benefits manager and the country’s third-largest health insurer. In a similar move, the healthcare giant Cigna purchased the pharmacy benefit manager Express Scripts.

Likewise, the nation’s largest health insurer, UnitedHealth Group, wants to grow its health plan division as well as its Optum healthcare services; Optum owns hundreds of medical practices, surgery centers, and urgent care centers across the country.

Advocate Aurora Health reported $12.8 billion in 2019 fiscal revenue. Advocate Aurora is among the 10 largest “not-for-profit, integrated health systems” in the US. The healthcare system serves nearly 3 million patients annually in Wisconsin and Illinois, with more than 500 sites including hospitals, urgent care centers, and doctor’s offices.

Similarly, Beaumont is Michigan’s largest healthcare system with a total annual net patient revenue of $4.7 billion. Beaumont’s healthcare facilities include 145 outpatient care sites and eight hospitals.

Potential scrutiny of state and federal regulators

The merger is likely to receive scrutiny from both state and federal antitrust regulators. Executives at both Beaumont and Advocate Aurora say they have already notified state regulators in Michigan, Illinois, and Wisconsin. “Both healthcare systems will work closely with regulatory and state agencies throughout the process. We have begun with notifications to all three state Attorneys Generals earlier this week,” both healthcare systems said in a joint statement.

In 2017, Advocate Aurora and Chicago-based NorthShore dropped plans to merge following a federal ruling in favor of the Federal Trade Commission. The FTC claimed the merger would reduce competition in the northern suburbs of Chicago, since both systems had hospitals in geographically overlapping regions. The FTC felt this could lead to higher prices and fewer incentives to improve the quality of health care.

However, Advocate Aurora does not expect the Federal Trade Commission to object to a deal with Beaumont, since they operate in different markets.