Regulators' assent leaves one hurdle for Aurora and Advocate healthcare merger

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CHICAGO – Illinois and federal regulators have cleared the path for the largest not-for-profit healthcare systems in Illinois and Wisconsin to join forces, leaving just one remaining hurdle.

The merger of Illinois-based Advocate Health Care and Wisconsin-based Aurora Health Care would create the 10th-biggest nonprofit hospital operator nationally.

The Illinois Health Facilities and Services Review Board, which must sign off on changes in ownership and new hospitals, approved the merger earlier this month and the Federal Trade Commission recently completed its review and won’t take action to block it as it has done with other mergers.

“We are excited to move one step closer” to completing the merger, the two systems said in a joint statement. “Advancing through the FTC’s review process was a key milestone in addition to securing regulatory approval in Illinois. We look forward to the final step of receiving approval in Wisconsin before our anticipated closing this spring.”

The systems’ boards have also approved the merger but the Wisconsin Office of the Commissioner of Insurance still must clear it.

As part of the merger announced in December, neither system agreed to assume any liability or guarantee the other’s debt. The two plan to “evaluate optimal credit structure alternatives and whether the refinancing of all or a portion” of their existing debt “could be considered beneficial to the combined organization.” No update was provided Tuesday.

The system would be known as Advocate Aurora Health and it would operate 27 hospitals, employ more than 3,300 physicians, and have combined annual revenues of $11 billion. Advocate is the largest system in Illinois with 12 hospitals in Chicago, the suburbs, and central Illinois, while Aurora has 15, mostly in southern Wisconsin.

The system would be run by a single board with equal number of members from Advocate and Aurora. With the current heads of each system serving as co-chief executive officers. The Advocate and Aurora names would continue to be used and each system will maintain its current headquarters. Advocate is based in the Chicago suburb of Downers Grove and Aurora is based in Milwaukee.

The merger follows Advocate’s failed attempt to join forces with NorthShore University HealthSystem in 2016. The two dropped their efforts after court rulings backed the FTC’s efforts to block the combination. The FTC argued it would harm consumer pricing and violate antitrust rules.

Talks between the two began after Advocate’s abandoned the NorthShore merger. The two have little overlap in their regional footprint. The healthcare sector has seen a wave of consolidation as systems adjust to federal healthcare reforms and larger scale operations help reduce costs and dilute payor dependencies.

No job losses are expected.

Advocate has about $1.5 billion of debt and carries ratings in the double-A category. In a September report, Moody’s Investors Service affirmed its Aa2 rating based on Advocate's size, good geographic diversity, very strong liquidity that allows absorption of delays in state Medicaid payments, moderate leverage and very good debt metrics even during lower performance.

Aurora carries single-A ratings and has about $1.3 billion of debt. Fitch Ratings upgraded the system in 2016 to A-plus saying it was due to “sustained operating profitability through interim 2016, which reflects strong cash flow ahead of historical levels.”

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