CEO SUMMARY: Integrated delivery networks continue to consolidate in the U.S., with the latest example being the merger of Atrium Health and Advocate Aurora Health. The deal forms a 67-hospital system across two distinct geographic areas in the Southeast and upper Midwest. IDN mergers raise the value of longitudinal test records for patients, with IDNs reaping the benefits of that data for healthcare goals, including value-based care.
YET ANOTHER MEGA-MERGER HAS OCCURRED IN THE HOSPITAL INDUSTRY and this transaction provides the latest evidence that integrated delivery networks (IDN) will play a large role in healthcare’s transition to value-based care.
A deal to consolidate has been struck between 40-hospital Atrium Health in Charlotte, N.C., and 27-hospital Advocate Aurora Health, which is co-headquartered in Downers Grove, Ill. and Milwaukee.
Pathologists and clinical laboratory administrators working in hospitals and IDNs should consider this merger of two sizeable health systems to be a bellwether transaction. There are reasons to expect additional merger deals between other large IDNs will occur in coming years.
Just as individual hospitals underwent major consolidation of ownership in the 1990s as a market response to the managed care contracting practices of health maintenance organizations (HMOs), there are market forces today that encourage multi-hospital health systems to combine into a single, much-larger IDN.
This new merger, announced May 11, results in a conglomeration of 67 hospitals and more than 1,000 ambulatory clinics across the states of Illinois and Wisconsin (Advocate Aurora’s region) and Alabama, Georgia, North Carolina, and South Carolina (Atrium’s area).
The new company will be known as Advocate Health and—with $27.1 billion in combined revenue—will become one of the largest health systems in the United States. No financial exchanges were described as part of the deal, and no assets from either company will change hands. Advocate Aurora and Atrium will also not transfer any liabilities.
It’s not clear if layoffs will occur, although the systems noted plans to create 20,000 new jobs as part of the merger.
Different Type of IDN Merger
One interesting aspect to this merger is that the Advocate Aurora-Atrium deal combines two geographically-separate IDNs. Advocate Aurora’s hospitals are spread across two Midwest states. Atrium’s hospitals are based in four Southeastern states.
Historically, IDN mergers have been created in adjoining states or regions. For example, in April, Intermountain Health and SCL Health completed a merger that created a giant IDN of 35 hospitals and 365 clinics that spans seven contiguous states in the Rocky Mountain region. (See TDR, “Intermountain Health Merges with SCL Health,” May 16, 2022.)
Meanwhile, in February, IDNs Beaumont Health and Spectrum Health merged in Michigan. Post-merger, this enlarged IDN has 22 hospitals and more than 300 outpatient clinics.
Similarly, a deal is in the works to merge Morgantown, W.Va.-based Mon Health System (three hospitals) and Charleston, W.Va.-based CAMC Health System (four hospitals). The two IDNs signed a letter of intent to create a single new system named Vandalia Health, the organizations announced March 31.
FTC Opposes Two Other Mergers
Two other planned IDN mergers have been opposed by the Federal Trade Commission (FTC). Following a 2020 agreement to merge, the FTC just last week filed a court case against the planned merger of Saint Peter’s Healthcare System (one hospital) and RWJBarnabas Health (12 hospitals). Both entities are based in New Jersey.
Separately, the FTC is opposing the planned acquisition of five Utah hospitals owned by Steward Health Care by for-profit HCA Healthcare in a deal that was announced in 2021. HCA intends to roll those five hospitals into its mountain division, which currently has 11 hospitals throughout Utah, Idaho, and Alaska.
Thus, just in the past 24 months there have been at least six multi-hospital IDN merger transactions announced. Data show there are approximately 474 integrated delivery networks that own and operate hospitals. (There are IDNs that do not include acute care hospitals.)
Last summer, research and intelligence firm Clarivate in London cited IDN growth as “one of the most dynamic changes in U.S. healthcare.” The six IDN merger deals described above support Clarivate’s analysis about the dynamic developments in the mergers and acquisitions of hospital-based IDNs.
In discussing their merger, Advocate Aurora CEO and President Jim Skogsbergh told the Charlotte Business Journal that the two systems’ shared values outweighed any benefits of geographic size, but he acknowledged that size does bring business advantages.
Strength to Serve Patients
“All of our metrics improve as we scale because we execute around that,” Skogsbergh said. “It isn’t just big for bigness’ sake, right? That’s not what gets it done. It’s using that to become stronger, and then using your strength to serve your patients, your communities, and your team members.
“Our work is done in the field, and at the bedside and in the laboratory,” Skogsbergh told the Milwaukee Journal Sentinel. “We don’t think headquarters is significant.”
Skogsbergh and Atrium Chief Executive and President Eugene Woods will act as co-CEOs for 18 months, after which Skogsbergh will retire and Woods will assume sole leadership.
In any merger of two different IDNs, one early priority for lab services is to rationalize them and standardize analyzers, tests, and test methodologies across all the lab facilities within the two merged IDNs. This brings economies of scale, supports performing more assays in-house to cut turnaround times for inpatients, and makes it easier to move medical technologists to different lab testing sites as needed.
Atrium’s Unique Lab Asset
What will be interesting to watch as the new Advocate Health enterprise begins to integrate its clinical laboratory services is whether administration recognizes one unique asset associated with the Atrium Health clinical lab division.
Atrium’s clinical laboratory division has one of the nation’s best-developed cultures of quality management. Lean and Six Sigma methods are fully integrated into the daily operations of the larger labs within the health system. This includes methods that address continuous improvement, system of prevention, small batch/single piece workflow, and the identification of non-conforming events that negatively affect patient care.
The Atrium Health laboratory team is recognized nationally for its accomplishments at creating a quality culture throughout the lab organization. This includes presentations by its leadership at recent Executive War College conferences.
Further, the lab teams at Advocate Aurora and Atrium have the potential to make important contributions that go beyond the usual issues of rationalization, consolidation, and regionalization of clinical lab testing services across the two merging IDNs.
Potential of Clinical Lab 2.0
There is a unique opportunity for lab administrators and pathologists serving within the merged IDNs’ laboratories. It is to move past Clinical Lab 1.0 (accurate and timely test results, produced at lowest cost) to Clinical Lab 2.0 (converting lab test data into clinically actionable intelligence that improves patient care and creates value for which the lab and its parent health system can be paid.) (See TDRs, “Lab Innovators Advocate Need for Clinical Lab 2.0,” Jan. 9, 2017; “Message to Labs: Improve Outcomes,Get Paid More Money!” June 5, 2017.)
The financial analysts at Clarivate recognize this opportunity for the two merging IDNs. “Through electronic health records (EHRs), patient information can be stored, tracked, and shared within the network, providing a comprehensive view of a patient’s health,” Clarivate wrote.
Big Data, Precision Medicine
In fact, converting healthcare data into actionable clinical intelligence is an opportunity recognized by the leadership at the newly-combined Advocate Health.
At the macro level, healthcare big data requires huge amounts of data, including patient health records, demographic data, geographic data, etc. Analysis of these data pools makes it possible to understand trends and identify geographical pockets where patients are underserved or specific clinical interventions can pay big dividends.
At the micro level, big data enables personalized medicine—the ability to diagnose a patient and tailor a treatment precisely to that individual’s unique needs. Both uses of healthcare data play to the strengths of clinical laboratories.
As lab test data is standardized within both sides of the newly-combined IDN, lab administrators and pathologists have the opportunity to ensure every patient has a full longitudinal record of lab test results.
To achieve maximum value, the goal would be for every patient record to have current and past inpatient, outpatient, and outreach test data with consistent test methodologies and reference ranges. This would allow the Advocate pathologists and lab managers to contribute added value to the IDN.
Advocate Aurora Earlier Looked for IDN ‘Partners’
IT WAS IN 2018 WHEN ADVOCATE HEALTH CARE OF CHICAGO MERGED WITH AURORA HEALTH CARE OF MILWAUKEE. The newly-combined integrated delivery network (IDN) quickly went on the hunt for another IDN that would be interested in merging.
Less than 24 months later, Advocate Aurora thought it had a likely merger partner with Beaumont Health of Detroit. The two IDNs signed a non-binding letter of intent to merge. The resulting merger would have created a $17 billion nonprofit health system across the states of Michigan, Wisconsin, and Illinois. But four months later, the deal was canceled. News reports blamed the break-up on “the COVID-19 pandemic and concerns raised by physicians and a former Beaumont Health trustee.”
In the announcement of the recent merger of Advocate Aurora Health and Atrium Health, the two IDNs stated their belief that the combined organization would focus on six areas: clinical pre-eminence and safety, health equity, affordability, next-generation workforce, learning and discovery, and environmental sustainability.