Advocate Aurora sets aggressive growth plans

Aurora St. Luke’s Medical Center in Milwaukee.
Aurora St. Luke’s Medical Center in Milwaukee.

In January, Advocate Aurora Health executives unveiled an ambitious set of goals for the organization, including doubling its revenue and more than tripling the number of patients it serves by 2025.

Chief executive officer Jim Skogsbergh and chief financial officer Dominic Nakis, presenting at the J.P. Morgan Healthcare Conference in San Francisco, said mergers and acquisitions will play a key role in the health system reaching those targets.

Advocate Aurora currently posts over $12 billion in annual revenue. It aims to grow that number to $27 billion over the next five years. It’s also set on growing the number of patients it serves from 2.8 million to 10 million.

The nonprofit system said it will employ several strategies to make that happen, including becoming a “multi-market consolidator,” consolidating the system with a health plan and developing new consumer-facing products and services. Advocate Aurora did not respond to a request for comment before publication of this story.

Health care industry representatives say Advocate Aurora’s plans are lofty, but would build on the system’s established track record of aggressive growth.

“I think it’s very doable,” Jim Mueller, president and chief executive officer of Waukesha-based health care consulting firm Mueller QAAS, LLC, said of Advocate Aurora’s 2025 goals. “If you look back in history, (Aurora) started with St. Luke’s hospital … and then they grew up and down the (Lake Michigan) shoreline in Wisconsin … They continued to expand with more and more hospitals, and added pharmacies as part of their portfolio. And then they went to Advocate Aurora, which gave them a lot more power.”

Since announcing the merger of Milwaukee-based Aurora Health Care and Downers Grove, Illinois-based Advocate Health in late 2017, leaders of the now-combined system have touted their union as a way to accelerate innovation, attract talent, open more opportunity for partnerships, enhance access to capital, improve synergies and diversify revenue.

Health care analysts, however, have repeatedly pointed to studies indicating health care consolidation rarely leads to lower costs for patients.

While Advocate Aurora hasn’t disclosed specific geographical regions of its possible M&A activity, Mueller said it’s likely the health system will look to neighboring states to expand its footprint, both organically and through acquisition.

“Probably in the Midwest in contiguous states – Minnesota, Michigan, Iowa,” he said. “I think they’ve learned from other hospital systems that being spread out all over the place gives very little leverage, versus being aggregated in geography.”

But expansion opportunities for the system – which has a network of facilities stretching from Green Bay to downstate Illinois – in its current states is somewhat limited, said Minnesota-based health care analyst Allan Baumgarten.

“The core of their business is in regions that aren’t significantly growing in residents,” he said. “And in the metro Chicago area, they face significant competition from major academic medical centers. If the strategy is to make acquisitions in their backyard and hopefully feed more revenue-producing patients to those facilities and those specialists practicing in their major facilities in the Chicago suburbs and southeast Wisconsin, that only gets you a small part of the way there.”

Also a limiting factor, Baumgarten said, is the lack of small or mid-sized systems to acquire – a product of the rapid consolidation of the industry in recent years.

“There are large regional systems that are well established (in the Midwest),” he said. “So the question is: would you try to target one of those larger regional systems?  If you look east into western Michigan, (Grand Rapids-based) Spectrum Health is almost as big as Advocate Aurora. I don’t think it views itself as a target of an acquisition. I think it views itself as a system that will continue to grow on its own.”

Beyond acquisitions, Advocate Aurora could also grow by investing more in technology and artificial intelligence, which could improve margins, and expanding in other medical areas, such as dental and vision, to bring more patients into the system, Mueller said.

“There’s no question, based on their track record, that Aurora and now Advocate Aurora will double its revenue; there’s no question in my mind at least,” Mueller said. “They will achieve that through organic growth, through M&A, through diversification of their product lines and through key investments in technology and AI.”

Despite former Milwaukee-based CEO Nick Turkal leaving after the system dropped its co-CEO model, Advocate Aurora maintains dual headquarters in Milwaukee and Downers Grove.

As the system continues to grow, Baumgarten said he wouldn’t be surprised if administrative operations increasingly shift south.

“I suspect that the Milwaukee headquarters will get downgraded over the years, to the extent that they’re centralizing certain functions or leadership positions,” he said. “That will take place in Illinois and not in Wisconsin.”

The success of the organization’s growth plan will depend on its leaders’ ability to steer it through the continual expansion, Mueller said.

“This is all subject to them being able to integrate the growth,” he said. “Some people can handle 10 kids; some would have a nervous breakdown with 10 kids. You have to have the human capital. You have to be able to assimilate and leverage the growth. And they have proven to date that they have that management capability.”

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