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Health care experts: Centegra merger would give patients streamlined referral network

Crystal Lake-based health care provider in talks with Northwestern

A potential affiliation or merger between Centegra Health System and Northwestern Memorial HealthCare could give McHenry County patients a more streamlined referral network and flow of information, health care experts said.

Centegra disclosed last week the two systems were in talks and exploring an affiliation. The extent of the affiliation remains uncertain, but representatives of the companies didn’t rule out the possibility of a merger or acquisition that would make Centegra a Northwestern Medicine member.

The talks mark Northwestern’s latest move into the suburbs. In 2014, Northwestern merged with Cadence Health, which has hospitals in Winfield and Geneva. DeKalb-based KishHealth joined the system in December.

The talks are part of a national trend, according to an analysis from health care consultant Kaufman, Hall & Associates LLC. In 2015, 112 hospital transactions were announced nationwide, an 18 percent jump from 2015 and a 70 percent jump from 2010.

In his analysis, Patrick Allen, managing director of the company, said the partnerships are designed to “achieve critical alignment, network breadth and depth, operational efficiency and other critical capabilities.”

Experts said the larger entity in a merger benefits from getting a larger footprint while the smaller entity gets improved branding and prestige and access to more specialty care.

A 2012 study on hospital consolidation from the Robert Wood Johnson Foundation said hospital consolidation generally results in higher prices and does not necessarily improve quality of care.

James Unland, president of Health Capital Group Chicago, said it is too early to spot any trends in Northwestern’s previous acquisitions.

In most hospital transactions, he said, the smaller entity is hoping to upgrade or expand its facilities, which leads to an inevitable price increase for patients.

However, because Centegra is nearly finished with construction of a new hospital in Huntley, he said those increases might not be realized in this case.

“The good news is that the [hospital] plan is very far along for Centegra,” Unland said. “In some ways, that means there should not be a big price shock, and maybe no price increase at all.”

Unland said the fact that Crystal Lake-based Centegra is already in a strong position means the affiliation is more likely to be successful and benefit both parties.

James Ciesla, associate dean for research and resources for Northern Illinois University’s College of Health and Human Sciences, said Centegra patients likely would not see much change from a merger in the short term.

Among the reasons for the merger trend, he said, is the uncertainty created by pay-for-performance initiatives from the Affordable Care Act and the private sector.

Rather than the traditional model where physicians receive a standard reimbursement for work they do, the initiatives would require paying health care providers for certain quality goals.

“[Hospitals] are drawing together to pool resources and make it easier to borrow money, improve cash flow and, we hope, sort of consolidate back-office operations, so finance, laundry and food services can be better,” Ciesla said.

The main benefit to Centegra patients, he said, would be a clear referral network that would allow patients and their information to be easily moved within the system for specialist care.

Unlund said there’s a possibility that some of Northwestern’s specialists could start spending time in McHenry County offices.

Mergers recently have come under scrutiny of the Federal Trade Commission. The FTC challenged OSF HealthCare System’s proposed acquisition of Rockford Health System in 2011 before OSF dropped its bid. In December, the agency challenged the merger of Advocate Health Care Network and NorthShore University System.

Those challenges don’t necessarily mean this transaction would be blocked, however.

Unland said the FTC generally objects when it anticipates large post-merger price increases. Ciesla said scrutiny generally is based on geography rather than size.

“They all depend on local situational factors,” Ciesla said. “One huge merger might be possible while a smaller one is stopped.”

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