CHICAGO — Standard & Poor's put the ratings of two double-A level not-for-profit health systems in Illinois on Credit Watch with positive credit implications after they said they would merge.
Advocate Health Care Network and NorthShore University Health System announced their intention to merge and form a single, unified organization on Friday. Advocate already is the largest not-for-profit healthcare system in the state.
"We believe that each health care system already demonstrates very strong enterprise and financial profiles, and that together they could improve further," said Standard & Poor's analyst Suzie Desai.
The boards of both systems voted last week to sign an agreement but the combination still requires approval from state regulators and the Federal Trade Commission as well as Advocate's religious sponsor — the United Church of Christ. The two systems hope to close on the marriage early next year.
The agreement outlines plans to consolidate balance sheets and boards of directors, as well as to have a unified mission, vision and strategy. The heads of each system will serve as co-chief executive officers for a designated period.
"We anticipate meeting with each management team within 90 days to flesh out our understanding of this merger, its obligated group structure, and plan of implementation. We anticipate resolving the CreditWatch listing within that timeframe and will publish full reports on each organization," Standard & Poor's said.
The rating agency assigns AA ratings to both. Moody's Investors Service also rates the two in the double-A category. Advocate is the larger of the two and has more than $1 billion of debt outstanding while NorthShore has about $300 million.
The new entity will be known as Advocate NorthShore Health Partners and operate 16 hospitals with more than $7 billion in annual revenues. The new system would become the nation's 11th largest and serve three million patients annually, according to a joint statement.
Advocate was formed in 1995 through a merger and has built itself into the state's largest system with a steady series of acquisitions over the years, serving Chicago and the northwest and western and southern suburbs. Its most recent acquisition was Sherman Hospital, northwest of Chicago, in 2013. It operates 12 hospitals.
NorthShore operates four acute care hospitals and is a dominant presence in the affluent suburbs north of Chicago. "Combined we will create economies of scale that will allow us to reduce the trend of rising health care costs," said Advocate Board Chair Michele Richardson in a statement. "Both organizations have a long standing commitment to quality, and together we will continue to advance innovation and outcomes."
The merger marks the latest in a wave in Illinois that has reflected a national consolidation trend as hospitals seek to leverage their larger size to adjust to federal health care reform. Two other systems — Northwestern Memorial Healthcare and Cadence Health — just completed their merger this month.