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CRYSTAL LAKE – After searching for several years for a partner, Elgin-based Sherman Health Systems announced Tuesday that it plans to pursue a deal with Advocate Health Care.
The deal would extend Advocate's reach into McHenry County, where Crystal Lake-based Centegra Health System is the dominant health-care provider with hospitals in Woodstock and McHenry and plans to open a third in Huntley by 2016.
Officials from both Sherman and Advocate have opposed Centegra's plan to build a hospital in Huntley.
Sherman's Board of Directors voted Monday to sign a non-binding letter of intent with Advocate. The decision was announced to staff and doctors Tuesday morning, according to a statement from Sherman Health.
"Through this partnership, Sherman will be able to grow and expand our services at an accelerated pace to become a distinctive, regional destination for care," Sherman Health President and CEO Rick Floyd said in the statement.
Sherman more than doubled its debt to $300 million to build a 255-bed hospital in Elgin, according to Crain's Chicago Business. A post on Sherman's website said the decision to partner with another health system was the result of a changing health-care marketplace, not financial pressure.
"Health-care reform now requires providers to deliver the best outcomes for the most people for the least amount of money. We believe becoming part of a larger system is the best way for Sherman to do that in the long term," the post said. "Sherman Health joins Advocate from a position of strength and choice. We are in the strongest financial position we've been in since we opened our replacement hospital in 2009 and feel this is the right time to consider becoming part of something larger."
The new Elgin hospital opened in December 2009 at 1425 N. Randall Road. The 645,000-square-foot facility has private patient rooms along with a 15-acre geothermal lake, birthing center, day surgery, critical care, level II trauma center and emergency department. It was named the fifth most beautiful hospital in the country by Soliant Health.
In July, Sherman had narrowed its list of potential partners down to two: Cadence Health, which operates Delnor Hospital in Geneva and Central DuPage Hospital in Winfield, and Oak Brook-based Advocate Health Care, which operates Good Shepherd Hospital in Barrington, Advocate Condell Medical Center in Libertyville, Good Samaritan Hospital in Downers Grove, and Lutheran General Hospital in Park Ridge, among others.
Before the most recent round of courtship, Centegra Health System had spent more than a year in talks with Sherman Health about a partnership. That effort ended in December 2010, shortly before Centegra announced plans to build a hospital in Huntley.
Sherman's board wasn't interested in a partnership with Centegra, Sherman Vice President of Business Development Mary Martini told the Northwest Herald last March.
Since then, Sherman has emerged as a top critic of Centegra's plans to build a $233 million, 128-bed hospital at the corner of Reed and Haligus roads in Huntley. Leaders from Sherman Hospital and Advocate Good Shepherd have said they would lose money needed to care for the poor if another hospital were built in McHenry County.
The Illinois Health Facilities and Services Review Board granted Centegra's application for a permit to proceed with the Huntley hospital in July. The same state board rejected Janesville, Wis.-based Mercy Health System's proposal to build a $115 million, 70-bed hospital at Three Oaks Road and Route 31 in Crystal Lake.
Both Mercy Health System, which operates Mercy Harvard Hospital in northern McHenry County, and Sherman Health have filed legal challenges to Centegra's plan to build in Huntley.
In the coming months, Advocate and Sherman will evaluate the prospects of the partnership and "begin planning the details of their potential integration," according to a statement from Sherman.
The deal would give Advocate an even larger presence in the regional health-care market. Advocate Good Shepherd Hospital is located about 15 miles away in Barrington.
Advocate is the state's largest health system. It has 10 acute-care hospitals, the state's largest home health-care company, and more than 6,000 affiliated physicians. It would become a parent company to Sherman.
“We are thrilled about the potential opportunity to partner with an organization that is as strong as Sherman Health,” Jim Skogsbergh, president and CEO of Advocate Health Care, said in a statement. “Advocate and Sherman share numerous core values, including a commitment to health outcomes and patient safety and a commitment to the communities we are privileged to serve.”
Advocate and Sherman plan to finalize the deal between May and July of next year. If the deal is completed, Sherman would change its name Advocate Sherman Hospital.
Health-care system mergers and acquisitions have been on the rise in the state in recent years as health-care costs have climbed and work began on federal health-care reform.
Agreements between Advocate Health Care and Condell Medical Center, Delnor Hospital and Central DuPage Hospital, Evanston Northwestern and Highland Park, Rockford Health System and OSF Healthcare System, and Provena Health and Resurrection Health Care have created larger organizations. Those new companies provide integration of health systems and physicians, as well as the ability to provide economies of scale and reduce duplication of services.
"It comes as no surprise that Sherman’s leadership chose a merger with Advocate Health System," Centegra Health System CEO Michael Eesley said in an email. "This aligns with the national trend of independent, community-based healthcare systems joining large organizations for scale and efficiencies."
Centegra, which remains independent, has joined Quality Health Solutions, a regional network of providers that includes 28 hospitals with a net operating revenue of $6 billion, toward those same ends.
"Centegra’s partnership with QHS allows us to remain independent, while sharing knowledge, cost sharing, best practice, and influence," Eesley said. "Our focus remains on serving the residents of greater McHenry County.
"We are now in the planning and development stage of Centegra Hospital - Huntley in order to meet the needs of our growing community. Our board members and associates live and work in this area and provide the highest quality integrated healthcare to those we serve."