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Advocate to invest $200M in Sherman

ELGIN – Advocate Health Care plans to invest $200 million in Sherman Hospital over the next five years as part of a pending merger.

The proposed investment includes $60 million for routine capital replacement and $140 million for buying physician practices, recruiting doctors, expanding services and other developments, according to a letter of intent signed by both health systems last October.

Recently released documents provide further details about the transaction and show that Sherman’s doctors wanted the hospital to remain independent.

Terms also call for refinancing or restructuring Sherman’s long-term debt to take advantage of Advocate’s lower borrowing costs. Sherman doubled its long-term debt to $300 million to build the state-of-the-art medical campus on Randall Road in 2009, according to media reports.

Acquiring the 255-bed Sherman Hospital would expand Advocate’s reach in Kane and McHenry counties.

“As part of the proposed partnership, we are making a substantial commitment of resources to enhance Sherman’s ability to meet the health needs of the communities it serves,” Advocate spokeswoman Stephanie Johnson said. “Once the partnership is finalized, we will be working closely with Sherman leadership to identify the specific areas in which to invest.”

Advocate is the largest health system in the state. The faith-based nonprofit has eight hospitals in the Chicago region, including Advocate Good Shepherd in Barrington and Advocate Condell in Libertyville.

The letter and other details of the planned merger were published in late March on the website of the Illinois Health Facilities and Services Review Board. The state board, which aims to prevent the unnecessary duplication of medical services that drive up health-care costs for patients, must approve the deal. It could vote on the merger next month. Crain’s reported on the matter earlier this week.

“We look forward to finalizing the partnership with Sherman and are hopeful that we will receive approval from the Illinois Health Facilities and Services Planning Board in May,” Johnson said.

Under terms outlined in the letter, all Sherman employees would remain employed by either Sherman or Advocate for six months after the deal is completed. Sherman’s management team will remain in place and its president would report to Advocate’s executive vice president and chief operations officer. The Elgin hospital would be called Advocate Sherman Hospital and adopt Advocate’s logos. Sherman’s board would add up to four Advocate nominees and cede authority over key spending and leadership decisions.

The deal is expected to close May 1, according to a separate letter from Sherman’s attorney to the state board.

That letter also acknowledges that Sherman expects the final cost to build the Elgin Hospital will exceed the amount the state board approved for the project. Frank Urso, the attorney for the state board, said the cost overruns and all other issues related to Sherman Hospital have been resolved and aren’t expected to prevent the board from considering the merger.

Other documents posted on the state board’s website show that Sherman’s doctors had wanted the hospital to remain independent.

“While many of our physicians wish that Sherman could remain independent, we understand that the changes in the healthcare industry are making it increasingly difficult for hospitals to do so,” Dr. Ashok Mehta, president of Sherman’s medical executive committee, wrote in a January 2013 letter to Sherman’s President and CEO Rick Floyd. “We feel that this is the right time for Sherman to join a larger system, and Advocate is the preferred choice among the medical staff.”

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