Advocate Aurora, Beaumont Health Explore Healthcare Merger Deal

Two of the largest health systems in the Midwest – Advocate Aurora Health and Beaumont Health – are exploring a possible healthcare merger deal.

“Following approval last week by the Boards of Directors, today both organizations signed a non-binding letter of intent that paves the way to deeper discussions to create a leading health care system that would span across Michigan, Wisconsin and Illinois,” the health systems announced in a joint statement today.

Advocate Aurora Health is one of the largest non-profit, integrated systems in the US, with 28 hospitals and over 500 outpatient locations in the Midwest. The system formed in 2018 following the merger of Illinois-based Advocate Health Care and Wisconsin’s Aurora Health Care.

Beaumont Health is Michigan’s largest health system. It is a non-profit system comprising eight hospitals, 145 outpatient sites, and nearly 5,000 affiliated physicians in the southeast part of the state.

“We are excited to explore this option with an organization as highly regarded as Advocate Aurora Health known for their track record in health outcomes, population health and consumer experience,” said John Fox, president and CEO of Beaumont Health.

President and CEO of Advocate Aurora Health Jim Skogsbergh added, “Beaumont Health has built a strong reputation for clinical excellence, education and research. This is a unique opportunity to explore a partnership with a like-minded, purpose-driven organization.”

The announcement comes on the heels of a failed healthcare merger deal between Beaumont Health and Ohio’s Summa Health. The health systems announced last month that the organizations had called off talks to create a $6.1 billion system because of the COVID-19 crisis.

“We didn’t plan this, but we are deferring that until we have a little more clarity about the impact of this crisis,” Fox said at the time.

But now that the dust is settling, the Michigan health system is reigniting discussions with Advocate Aurora Health.

Beaumont Health and Advocate Aurora Health began discussions about a possible partnership at the end of 2019 but paused talks to allow both organizations to focus on COVID-19 response efforts, the health systems stated in the announcement from earlier today.

Hospitals and health systems, in particular, have faced the brunt of the emergency as surges of patients infected with the highly contagious and deadly virus presented at their doors.

The unprecedented public health emergency quickly turned into a financial crisis for hospitals. The American Hospital Association (AHA) recently estimated that hospitals have lost over $50 billion a month since the start of the pandemic in the US due to coronavirus-related expenses.

Healthcare mergers can help providers increase scale to produce significant cost savings at a time when hospitals and health systems need it the most.

“The potential opportunity to leverage the strength and scale of a regional organization while maintaining a local focus and strong presence in Michigan as a leader and major employer is important to us,” Fox said in the announcement.

Other health systems have also revived healthcare merger and acquisition talks in light of the COVID-19 pandemic. Rhode Island’s Care New England, for example, recently restarted merger discussions with LifeSpan, another health system in the state.

In the months of the COVID-19 crisis, the health systems “have been working together in unprecedented ways to benefit” the state, patients, and employees, leaders said in a joint statement earlier this month. As a result, both organizations have agreed to explore “the pros and cons of what a formal continuation of this collaboration could look like in the future.”

COVID-19 could accelerate the already fast pace of healthcare merger and acquisition activity, analysts say.

Larger health systems seem to be faring better during the crisis. The organizations can better absorb financial losses due to greater cash reserves and capital resources. They have also been able to leverage larger human capital bases and other deployable resources to quickly pivot operations during the crisis.