CHICAGO — The nation’s largest nonprofit health care provider, Ascension Health, will acquire Alexian Brothers Health System, a union that marks the latest in a consolidation trend as hospital systems seek to bolster their capital positions and navigate the challenges of federal health care reform.
St. Louis-based Ascension and Arlington Heights, Ill.-based Alexian Brothers signed a non-binding letter of intent Wednesday. They hope to complete the merger by the end of the year. Illinois regulatory approval is needed. The systems did not release any financial details.
“Alexian Brothers and Ascension Health share a commitment to strengthening Catholic health care nationwide and we are very enthusiastic about the prospect of helping them continue their vital ministry for generations to come,” Ascension president Anthony Tersigni said.
Alexian Brothers began looking to join forces with a partner two years ago as it faced the prospects of federal reforms and growing fiscal challenges even as it posted improved financial results. “A partnership with Ascension Health provides us with the resources needed to grow as health care changes,” Alexian executive vice president Mark Frey said in a statement.
The Alexian Brothers system, founded in 1866, operates two-Chicago area hospitals and senior living and other health care facilities in Missouri, Tennessee and Wisconsin that combined generate $1 billion in annual revenue. It has about $450 million of debt rated in the single-A category. Analysts say Alexian’s challenges include relatively high capital needs and an above-average debt along with competition from other nearby facilities that are well-capitalized. Strengths include its leading market position in an affluent area.
Ascension is both the nation’s largest nonprofit and largest Catholic health care system, employing 113,000 at 500 facilities in 20 states and the District of Columbia, including 70 hospitals. The system generates $15 billion in annual revenue. Ascension has more than $4 billion of outstanding debt that carries high double-A level ratings. Analysts point to its size and diversity, market prominence, strong investment and cash position, and solid management. It challenges include competition, moderate operating margins, and a reliance for 24% of revenues on its facilities in Michigan, which is battling high unemployment and population decline.
Moody’s wrote in a report last year: “Ascension Health has a long track record of successfully completing large mergers or acquisitions while maintaining financial strength and focus on operations.”
Industry participants see the consolidation trend escalating as the nonprofit sector’s challenges — raising affordable capital for upgrades while trimming costs and implementing federal reforms — favor larger economies of scale.
The Chicago area is seeing a merger surge. Central DuPage Health is joining with Delnor Health. Resurrection Health Care and Provena Health are exploring a merger. Michigan-based Trinity Health is acquiring the two-hospital Loyola University Health System in Illinois.
Earlier this year, Ascension formed a joint venture called Ascension Health Care Network with the private equity firm Oak Hill Capital Partners to invest in the purchase of Catholic hospitals that otherwise might end up in the hands of a for-profit or non-Catholic operator, according to published reports. The Alexian acquisition is not part of that endeavor.