Advocate Aurora and Atrium Health’s merger plans hit a road block on Tuesday, threatening to delay the creation of a $27 billion health system, which would make it one of the nation’s largest nonprofit systems.
Illinois state health regulators will reconsider Advocate-Atrium’s application after initially voting against the application that sought a change in ownership, a step in the regulatory process needed to complete the deal.
Members of the Illinois Health Facilities and Services Review Board voted 3-2 against the application on Tuesday in suburban Chicago. One member abstained.
However, later in the meeting, the board allowed a motion to reconsider, deferring the application to be considered at a later date.
“They felt like they didn’t have what they needed to make an informed decision,” John Kniery, administrator for the board told Healthcare Dive after Tuesday’s meeting.
Advocate Aurora Health said it was surprised by the decision to delay.
State law requires the board to approve exemption applications that are deemed complete, Advocate said in a statement. “Our application was deemed complete last month, thus, we were surprised by today’s delay and will work with the Review Board to address their questions.”
In the state of Illinois, certain healthcare projects require a permit or exemption to proceed, according to the Illinois Health Facilities and Services Review Board.
Advocate and Atrium were seeking an exemption, which is required for closures, a discontinuation of services or a change in ownership.
The Advocate-Atrium deal required the parties to obtain an exemption because the deal constitutes a change in control, Kniery told Healthcare Dive. The staff report on the deal explains that it is “considered a change of 50% or more of the voting members” of the board.
The board change triggered the need for the exemption application.
Advocate has said that the deal with Atrium will not result in “any change of ownership as assets will remain within each respective organization and state.”
Kniery maintained it “clearly was a change of control being proposed.” This is causing the confusion for board members, Kniery said, who added that neither the board nor staff have seen the agreement between Advocate and Atrium.
“First, it has been clear that there will be no change in assets. However, yes, it is fair to say some of the questions the board is seeking is around the change in control … what does control look like,” Kniery said.
Advocate and Atrium are proposing to create a new corporate entity, Advocate Health Inc.
The two systems will then delegate “certain operational functions” to the new entity through a joint operating agreement. The new entity will not be considered a parent company and ownership of existing facilities will remain with the current corporate entities, according to the staff report. The staff reports notes that the board has not received a copy of the joint operating agreement.
The new entity, Advocate Health Inc. will have 20 board members, with 10 designated by each system.
The transaction is expected to be complete by Sept. 30, according to the staff report. However, it’s unclear when the board will reconsider the application.
“Obviously, we don’t want to hold it up any more than it has to be,” Kniery said.
In Illinois, Advocate Aurora owns and operates 10 healthcare facilities, nine hospitals and one ambulatory surgery center.