Aurora Health Care Merger is Bad News

In April 2018 Aurora Health Care, the largest health care system in Wisconsin, merged with Advocate Health Care, the largest such system in Illinois. It created the ninth largest such system in America, with a combined budget of $11.6 billion, some 70,000 employees, including 3,000 physicians, and more than 500 facilities, including 27 hospitals.

Jim Skogsbergh, the CEO of Advocate Aurora, as the merged system is now named, recently ticked off the advantages of the merger for the Journal Sentinel, including “consolidating administrative operations, getting better prices when negotiating purchasing contracts and making it easier to recruit staff,” as Guy Boulton reported.

“There are all kinds of reasons that scale is important,” Skogsbergh told the newspaper. “Every time we’ve scaled up, we’ve gotten stronger.”

Elsewhere, publications that are a little more probing offered a less sanitized view of what was happening. The industry publication Modern Healthcare reported that since the merger, Advocate’s employees lost their annual bonus (of about $150 to $300) while the chief executives got big raises.  

Skogsbergh “has been the highest-paid local CEO for five years in a row. He took home $11.7 million in 2017—up 42 percent from the year prior,” the story reported. “Skogsbergh makes nearly 470 times more than Advocate employees currently earning minimum wage in Chicago. Co-CEO Nick Turkal, former head of Milwaukee-based Aurora, got a 187 percent raise to $11.4 million in 2017. That’s about 755 times more than employees earning minimum wage in Wisconsin.” Turkal has since resigned, as Skogsbergh grabbed all the power. 

Yes, health care mergers are about delivering higher profits (sorry, make that net operating income as these organizations are legally non-profits) and bigger salaries in the executive suites. Skogsbergh told the Journal Sentinel he hopes to pursue more mergers and grow the system to $27 billion, which should allow him to at least double his current salary, which was already the seventh highest in the nation for a non-profit health care system.

The number of health care mergers has mushroomed in recent years, with more than 500 from 2013 to 2017. And as these systems grow, “hospitals add billions of dollars annually to their bottom line, lavishly compensate their CEOs, and spend millions of dollars, which are generated by patient fees, lobbying government to defend the status quo,” as a story by Forbes noted.

In the case of Advocate and Aurora, the merger “has yet to produce hoped-for improvements in financial performance. Although total revenue at the 27-hospital network rose 3.5 percent to $12.2 billion last year, operating income fell 10 percent as costs rose,” as Modern Health Care reported.

More typically, a merger does save on costs through consolidation of operations. But the money saved, as Forbes noted, isn’t used to lower the price of care. As an analysis by the National Council on Compensation Insurance noted, “Reductions in hospital operating costs do not translate into price decreases. Research to date shows that hospital mergers increase the average price of hospital services by 6%−18%.”

The bigger the health care system, the more power they have to dictate prices. “According to an examination of 25 metropolitan areas with the highest rate of consolidation from 2010 through 2013,” the New York Times reported, “the price of an average hospital stay soared, with prices in most areas going up between 11 percent and 54 percent in the years afterward, according to researchers from the Nicholas C. Petris Center at the University of California, Berkeley.” The cost are paid for by consumers through higher insurance payments and increased out-of-pocket charges. 

And for all the talk about mergers creating more sophisticated systems that can afford the best technology, the research shows health care mergers actually result in poor quality health care. A 2018 report by the Journal of American Medicine found that healthcare consolidation increased the risk of adverse patient safety events.

Martin Gaynor, a Carnegie Mellon University economist who is an author of several reviews exploring the consequences of hospital consolidation, told the New York Times that “evidence from three decades of hospital mergers does not support the claim that consolidation improves quality.” 

The story noted a study published in Health Services Research that “focused on the health care outcomes of about two million Medicare beneficiaries who had been treated for hypertension, for a cardiac ailment or for a heart attack” and “found that when cardiology markets are more concentrated, these kinds of patients are more likely to have heart attacks, visit the emergency department, be readmitted to the hospital or die. These effects of market concentration are large.”

As these gigantic health care systems have arisen, they have become further removed from neighborhoods, cities and even the states they serve. Aurora, once Wisconsin’s largest system, is now essentially run by an Illinois entity: Of Advocate Aurora’s 17 high-paid executive leaders, 11 work out of Downers Grove and just six work out of Milwaukee, Boulton reported. 

And when you’re disconnected from the community you serve, it becomes easier to abandon poorer neighborhoods, as Ascension Health, the St. Louis-based chain, planned to do at St. Joseph’s Hospital. Ascension announced it planned to close its surgical and medical units and discontinue other services, because it was losing $20 million a year at the hospital. 

Meanwhile, as I reported in 2018, the chain’s top seven executives together earned more than $41 million annually. “If they earned half as much in compensation, they’d still make enough to be in America’s top 1 percent and Ascension could have afforded that loss.”

Mega health care systems have become prime drivers of the wealth gap in America, with executives earning hundreds times more than their average employees, while hiking their prices ever higher, leaving average Americans to pay the bill through skyrocketing premiums and through higher taxes because these alleged non-profits are tax exempt. In 2011 it was estimated that the value of the tax exemption to America’s nonprofit medical organizations was a whopping $24.6 billion.

Meantime, as they close or downsize less profitable hospitals these health care monoliths are hollowing out medical care in poorer urban and rural areas. An excellent newspaper report from 2014 found that “nearly two-thirds of the roughly 230 hospitals opened since 2000 are in wealthier, often suburban, areas.” Meanwhile, the number of hospitals in 52 major cities fell “from its peak of 781 in 1970 to 426 in 2010, a drop of nearly 46%… Most of the facilities closed were small to mid-size community hospitals in poor urban neighborhoods and public hospitals, leaving many low-income neighborhoods with no safety-net hospital.”

That story was co-written by the Milwaukee Journal Sentinel, back when the newspaper still did some hard-hitting stories. The article didn’t even get referenced in Boulton’s dreary account of Advocate Aurora’s plans to expand. As the headline informed us: “Advocate Aurora’s plan to double in size is based on firm belief: Bigger is better.”