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Advocate Aurora Health plans to acquire a portion of one of the state’s largest HMOs, but it is unclear how much of an ownership stake the health system would have when the entire deal is completed. Sauk City-based Quartz Health Insurance and Advocate Aurora announced in January plans to collaborate on a Medicare Advantage plan for seniors, but documents filed with the Wisconsin Office of the Commissioner of Insurance indicate the Milwaukee- and Downers Grove, Illinois-based health system is seeking to do a larger transaction that would happen in three steps. The documents disclose information about the first phase of the transaction, in which Advocate Aurora would acquire a 15% stake in Quartz Health Plan Corp. for $5 million. The details of phases 2 and 3, such as how much ownership Advocate Aurora would have when the entire transaction is completed, are not disclosed in the documents. Quartz Health Plan is co-owned by Gundersen Health System, UW Health and UnityPoint Health – Meriter. The company manages four health insurance plans and provides services for self-funded health benefit programs as a third-party administrator. Advocate Aurora will “consider options” to increase its partnership with Quartz after phase 1, including buying more shares or holding a board seat, said Rick Klein, chief business development officer. Klein did not offer specifics regarding what is included in the deal’s subsequent phases. The first phase would allow Advocate Aurora to develop the new Quartz Medicare Advantage product that the two organizations announced in January, and determine which health care providers will be included in the network and what the reimbursement levels for the plan will be. Advocate Aurora would not have any power to appoint or designate a member of Quartz’s board after phase 1 of the transaction. After the transaction, Advocate Aurora would own 15% of Quartz Health Plan Corp., UW Health would own 52.26%, Gundersen would own 17.42% and UnityPoint Health would own 15.32% of Quartz Health Plan Corp. Currently, University Health Care, Inc. – UW Health’s parent company – owns 61.48% of Quartz Holding Co., while Gundersen owns 20.49% and UnityPoint owns 18.03%. Advocate Aurora filed documents with OCI on May 1. They show Advocate Aurora’s ownership stake after phase 1 of the transaction, but information regarding phases 2 and 3 of the transaction was redacted on June 17. Advocate Aurora said in a letter to OCI it wants to close on phase 1 of the deal by Aug. 1. The filings said Advocate Aurora plans three phases of “increasing investments” into Quartz. “We continue to seek innovative ways to partner with health insurers like Quartz to advance these efforts and make quality health care more accessible and affordable in eastern Wisconsin,” Klein said in an emailed statement to BizTimes Milwaukee. “Quartz’s experience and track record of success with Medicare Advantage will help us better serve this market,” adding that it will allow the system to expand access to its clinicians and offer more member benefits. “As our collaboration moves forward, we’ll consider options for future phases like buying more shares or holding a board seat,” Klein said. "Anything in the contract beyond Medicare Advantage is an option, not a commitment. Our focus remains on Medicare Advantage and driving more value for the people and communities we serve.” OCI plans to complete its review of phase 1 of the transaction by late summer or early fall, said OCI spokesman Derek Spellman. If phase 1 is approved, possible changes in ownership stakes in phases 2 and 3 would be disclosed in subsequent filings, Spellman said. “OCI will review the transaction at each phase and has the opportunity to disapprove the transaction as the review progresses,” Spellman said. Quartz Health Plan Corp. generated about $273 million in revenue in 2017, according to its tax filing for 2017, the most recent one that is publicly available. Quartz said it has more than 340,000 customers in southern and western Wisconsin, parts of Illinois, Iowa and Minnesota. In 2019, Advocate Aurora reported $12.8 billion in total revenue, and has publicly set aggressive growth plans for the next five years. The organization announced in June it is exploring a merger with Beaumont Health, Michigan’s largest health care system. Following the merger of Downers Grove-based Advocate Health and Milwaukee-based Aurora Health Care in 2018, the combined organization is now among the nation’s largest health systems, with its more than 500 facilities stretching from north of Green Bay to downstate Illinois. Prior to its merger with Aurora, Advocate’s plans to merge with Evanston-based NorthShore University HealthSystem were nixed in 2017 after a federal judge ruled the deal violated antitrust law and would likely increase consumers’ health care costs. The combination of Advocate Aurora’s possible acquisition of Quartz and its potential Beaumont merger would have a “very large impact” on the Midwestern health care industry, said Tom Hefty, former CEO of Blue Cross-Blue Shield of Wisconsin. “It’s rare that the Midwest has national giants anymore,” Hefty said. “But if Beaumont and Advocate Aurora goes through, you’re talking about the third biggest (health care system) in the country, the biggest merger of the year. And throw UW (Health) into that … the Midwest always has some sort of psychological inferiority complex, but in this case, health care would be a giant.” Consolidation in the health care industry has historically increased costs for consumers, Hefty added.