Ascension increases presence in Illinois

St. Louis-based Ascension Health, the faith-based Catholic health system, solidified its presence in the Chicago metropolitan area and state of Illinois by agreeing to acquire Presence Health and its 12 facilities.

Presence debuted in November 2011 from the merger of Resurrection Health Care and Provena Health. At that time, Resurrection had been a member of Premier Inc. for a decade. Five months later, Presence decided to renew with Premier and join Premier’s Catholic Contracting Group (CCG), which formed in 2005 around committed supply and service contracts involving $2.4 billion in annual purchasing volume at that time.

By joining Ascension, which is fusing Presence with its AMITA Health unit, Presence likely will shift its purchasing volume over time to Ascension’s own group purchasing organization The Resource Group. AMITA Health represents a Chicago-based joint venture between Ascension’s Alexian Brothers Health System and Adventist Midwest Health.

With the deal reported in a variety of media outlets, including Healthcare Purchasing News’ online Daily Update, HPN Senior Editor Rick Dana Barlow asked for general market insights from Munzoor Shaikh, Director, West Monroe’s healthcare practice.

HPN: Will Presence Health as a brand name go away, replaced by AMITA Health branding? Or will there be some kind of co-branding?

SHAIKH: It’s not clear whether Presence Health will take on the AMITA branding yet, though this will likely be answered as the deal closes. More broadly, adding Presence to the AMITA Health joint venture should allow Presence to take advantage of investments that AMITA has already made in back-office operations (e.g., technology), which would allow Presence to improve their balance sheet.

A joint venture versus a stock deal avoids the complex regulatory process, which could drag out for 18+ months. This allows providers and employees to focus on providing care versus wondering about the future of the organization. Presence has been busy with M&A activity and is already dealing with divesting two hospitals in Illinois. There will be a lot of complexity in Presence’s operations over the next several years as they untangle one set of units and integrate into another organization.

What about operational redundancies, in terms of Supply Chain? Or is it too early to talk about centralization and standardization efforts? I presume Presence facilities will be using Ascension’s GPO The Resource Group? What changes can we anticipate?

This is another acquisition in a long spree of acquisitions for Ascension, showing that Ascension is committed to size. However, like most hospitals, efficiency isn’t the top priority. In fact, efficiency can worsen due to size. Narrow integration of Presence Senior Care unit is interesting. This could potentially lead to accumulating dis-synergies. Ascension already faces – like many hospital systems – a proliferation of applications doing the same thing. Such dis-synergies can become a taxing problem for current and future acquisitions. This has an interesting impact on the Chicago and North Indiana hospital markets. Several others could be a target for absorption, especially if they exist in semi-remote markets, align on mission with the Catholic system or struggle to obtain favorable networks via the payers.

How do you see Ascension’s larger AMITA presence competing and faring with other systems in the Chicago metropolitan area, including Advocate, Northwestern, Rush and University of Chicago Medicine?

The acquisition of Presence’s 12 hospitals should be a good fit for Ascension as it seeks to advance the AMITA Health partnership and gain more ground in Illinois. Presence (formerly Resurrection) was the largest Catholic health system in the state, and this acquisition solidifies Ascension as the Catholic health leader in the state. Ascension brings profitability and scale to Presence. Their footprints complement each other with Presence mostly covering Chicago locations (plus downstate) and Ascension/AMITA having a mostly suburban footprint. The expansive footprint for Chicagoans who often work/live in both the city and suburbs could give them a leg up on other systems in the area that focus on either the city or the suburbs, such as University of Chicago Medicine and Northwestern. Ascension’s city/suburb approach helps them compete better with Advocate, which takes a similar approach, but they’ll need to invest in infrastructure and technology upgrades in Presence locations to do so.

How do you see this deal impacting Ascension’s efficiency and day-to-day operations, as well as AMITA’s, and the Illinois hospital market in general?

After this deal, Chicago hospitals should pay heed to being acquired – unless that is their desire – and build unique market presence around quality, patient experience or superior ability to conduct value-based care if they want to maintain their independence. Hospitals’ challenges in today’s world become how to have their mission inform competitive strength in a pragmatic way. For example, if the community is a large constituent of your mission, you could subsidize community efforts with profits from other business lines. However, that is becoming a more and more challenging route. More practically, you need to have mission be combined with innovation, such as working with the community in innovating care delivery models, such as mobile health, and social determinants of health that are empirically driven, etc.