CHICAGO — A union between St. Louis-based Ascension Health and Arlington Heights, Ill.-based Alexian Brothers Health System advanced Thursday with the announcement that the two had signed a definitive agreement for Alexian’s acquisition by nation’s largest nonprofit health care system.
“This partnership will help to provide us with the resources needed to grow as health care changes,” Mark Frey, ABHS’s executive vice president, said in a statement. The union now advances to the Illinois Health Facilities and Services Board, which holds sway over transactions involving the state’s hospitals. Federal regulatory approval is also needed.
The two systems first announced in April a letter of intent to merge. “We share a commitment to build on our mutual strengths along the full continuum of care, particularly senior and long-term care,” said Anthony Tersigni, Ascension Health’s president.
The financial terms of the definitive agreement are confidential, according to a statement. The two hope to complete their deal by the end of the year.
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 have said in recent reports that Alexian’s challenges include relatively high capital needs and an above-average debt level, along with competition from other nearby and well-capitalized facilities. Strengths include its leading market position in an affluent suburban 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 and is known for its sophisticated debt management.
Analysts point to its size and diversity, market prominence, strong investment and cash position, and solid management as core strengths. Its challenges include competition in various markets, 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.”
The union is the latest in a national consolidation trend as hospital systems seek to bolster their capital positions and trim costs as they navigate the challenges of federal health care reform. Industry participants see the consolidation trend escalating as the nonprofit sector’s challenges favor larger economies of scale.
Illinois has seen a surge of mergers over the last year, with more pending. Central DuPage Health and Delnor Health, both of which serve the western and northwestern suburbs, have joined forces. Chicago-based Resurrection Health Care and Mokena, Ill.-based Provena Health have reached a merger agreement. Michigan-based Trinity Health recently acquired the two-hospital Loyola University Health System in suburban Chicago and is in talks to acquire Chicago-based Mercy Hospital.