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Board members said they were not given enough details about operational matters and the controlling interests of the new entity, the board said at the hearing today.
Advocate Aurora and Atrium Health first announced their intent to merge in May, a plan that includes naming the combined entity Advocate Health. Advocate Aurora CEO Jim Skogsbergh and Atrium CEO Eugene Woods would serve as co-CEOs for the first 18 months, with Skogsbergh eventually retiring, at which point Woods, who is based in Charlotte, would become the sole CEO.
Advocate Aurora previously told Crain’s it expected the merger with Atrium to save anywhere from $100 million to $300 million annually by 2027. Advocate Aurora said at the time it could reduce operating expenses through group purchasing for medical and pharmacy supplies and combining consumer-facing digital infrastructure.
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Ahead of today’s decision by the state board, industry experts voiced concerns with the merger, saying a combined Advocate Aurora and Atrium could wield too much bargaining power in its negotiations with multi-state insurers and employers. Payers in both Illinois and North Carolina are dominated by Blue Cross & Blue Shield health plans.
Advocate Aurora’s bargaining power was already called into question in a lawsuit filed earlier this year by a Wisconsin self-insured pharmacy that claimed Advocate Aurora uses its size to pursue “all-or-nothing contracts.”
Advocate Aurora reported 2021 revenue of $14 billion, and operates 27 hospitals and more than 500 sites of care. Atrium Health, with 2021 revenue of $13 billion, operates 40 hospitals and more than 500 care sites across North Carolina, South Carolina, Georgia and Alabama.
The ruling puts Advocate’s merger timeline in question, as the next scheduled meeting of the regulatory board is Dec. 13.
The statute requiring health systems to apply for a change of ownership states “the board shall approve it. But there doesn’t appear that there is a mechanism for what would happen if they don’t approve it,” said Juan Morado Jr., partner at law firm Benesch.
Morado said he was previously general counsel for the board.
In voting no, board member Dr. Sanda Martell said she had “grave concerns” that the board had enough information “to ensure an orderly transfer” of ownership.
She said there was a framework, but it wasn’t fully thought through.
Advocate Aurora Chief Operating Officer Bill Santulli told the board the health systems would work to get it more detailed information about post-merger operations and control.
Santulli told the regulatory board that, should the new jointly operated health system want to add a hospital in Illinois, the local board would first have to approve it. But ultimately, the full organization’s board would have to approve such a move.
He noted that 50% of the new organization’s board would be from Advocate Aurora.
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