Crain’s Chicago Business
Two hospital systems in Rockford and southern Wisconsin have agreed to merge, creating a new nonprofit system that will have a combined $1.45 billion in revenue.
The announcement today comes after the boards of Rockford Health System and Mercy Health System unanimously signed off on the merger Oct. 23, the hospital CEOs said. The deal could be completed as early as December, pending approval from the Illinois Health Facilities and Services Review Board. No cash was exchanged as part of the merger.
Javon Bea, president and CEO of Janesville, Wisconsin-based Mercy Health, will lead the new parent system and sit on its board.
The merged system will include five hospitals, more than 550 physicians and 80 outpatient clinics in Illinois and Wisconsin. Rockford Health System has a 396-bed hospital and a 61-bed rehab center. Mercy has hospitals in Janesville and Lake Geneva, Wisconsin, and a 65-bed facility in Harvard, Illinois. Mr. Bea said this partnership adds specialty pediatric and neonatal care that Mercy does not offer.
The Rockford Township-based hospital has about $450 million in revenue annually, said Kristina DeCoster, a spokeswoman for the health system. Mercy has more than $1 billion in revenue, according to its website. It has invested about $220 million in updating its facilities over the past few years, Mr. Bea said.
Hospitals are increasingly looking to get bigger as payment models move from the traditional fee-for-service to systems that rely on outcomes and reward providers for keeping people healthy. Small facilities have difficulty competing because they lack the volume to reduce per-patient costs significantly. Even Advocate Health Care, the state’s largest system, recently announced plans to merge with NorthShore University HealthSystem, the dominant health network in Chicago’s northern suburbs.
The Rockford Township-based system has been in talks with larger organizations for a while, looking for a partner to help bolster the hospital’s profitability. Winfield-based Cadence Health most recently looked into merging with Rockford, but the agreement was called off in January. Downers Grove-based Advocate Health Care, the largest hospital system in the state, was interested in adding Rockford Health to its system in 2008, though those talks ended soon after.
“What makes this partnership different is that we (Rockford Health and Mercy Health) are geographically contiguous, while the others (Cadence and Advocate) were not,” said Gary Kaatz, president and CEO of Rockford Health. “The second difference is that we are sharing the governance function in this deal and play a key role on the board.”
In previous merger talks, Rockford Health was given minimal seats on a large board of directors, Mr. Kaatz said. The new operation with Mercy will have a nine-member board of directors that includes four representatives of each system.