Stitched together: Ascension acquisition could shake up Wheaton Franciscan

Cover Story

Columbia St. Mary’s Hospital Milwaukee.
L: Columbia St. Mary’s Hospital Milwaukee. R: Wheaton Franciscan-St. Joseph Campus in Milwaukee.
L: Columbia St. Mary’s Hospital Milwaukee. R: Wheaton Franciscan-St. Joseph Campus in Milwaukee.

When Wheaton Franciscan Healthcare joins longtime competitor Columbia St. Mary’s under Ascension Health’s massive umbrella early next year, it could mean major changes regionally for the industry.

The combined health care systems will reduce redundancies in the market – both at the clinical level and with administrative overhead – which, if executed correctly, could lower costs to the benefit of employers and patients.

“Ascension is a well-oiled machine at this point. It has a way of doing business that is more efficient than the current way,” said Jim Mueller, chief executive officer of Mueller QAAS LLC, a Waukesha health benefits consulting firm. “A Wisconsin leader (for Ascension) will be named sometime in the first half of 2016, and that person will move swiftly on a total reorganization, integration and execution of a game plan.”

The Wheaton Franciscan Sisters announced in October that they had signed a letter of intent transferring all of their operations in southeast Wisconsin to St. Louis-based Ascension, the parent company of Columbia St. Mary’s.

Wheaton is one of the largest health care providers in the Milwaukee area, with nearly 11,000 employees, eight hospitals, three long-term care facilities and several clinics. Its Wisconsin operations are based in Glendale. As a system, Wheaton Franciscan Healthcare has more than 100 sites in Wisconsin, Iowa, Illinois, and Colorado, including 14 hospital campuses, three transitional and extended care facilities and two home health agencies.

Columbia St. Mary’s, which has been part of Ascension since 1999, has three hospitals and several clinics in the Milwaukee area.

Upon the expected closing of the transaction with Wheaton Franciscan in the first quarter of 2016, Ascension Wisconsin will include 27 hospitals, more than 24,000 employees, 150 clinics and $3.5 billion in annual operating revenue.

Ascension is already the country’s second-largest health system by revenue and the largest Catholic health system in the world, with 131 hospitals in 24 states.

The system reported strong fiscal 2015 financial results, which it attributed to increased patient volume, particularly in the outpatient setting. For the fiscal year ending June 30, Ascension’s reported operating margin increased to 3.4 percent, up from 3 percent in fiscal 2014.

Anticipating that Wheaton Franciscan president and chief executive officer John Oliverio is nearing retirement (Oliverio’s future plans have not been announced and he denied a request for an interview), the Wheaton Franciscan Sisters were looking for a Catholic system that could continue their mission.

“As the Wheaton Franciscan Sisters looked to assure their mission will endure, it became clear that the right course was to seek out the organization with the best fit for each of our health care regions and housing division,” Oliverio said in a statement on Oct. 29, the day the acquisition was announced.

Sister Pat Norton, chair of the sponsor member board for Wheaton Franciscan Healthcare, said the decision came after a lengthy discernment process by the Sisters, who are aging and whose numbers are dwindling.

“We wanted to transfer our corporate ministries while these ministries are healthy, fiscally sound, and have a strong sense of mission and values,” Norton said. “The choice to transfer our ministries ensures that the needs of the times will continue to be addressed in each community, as the Sisters have worked to do for more than 140 years.”

A source who is familiar with the discernment process, but who did not want to be identified, said Catholic-owned hospitals such as Wheaton base decisions on the mission, not the business.

He believes the decision to be acquired by Ascension had just as much to do with the system’s size and stability as it did with its beliefs. For example, the Hospital Sisters Health System, which has hospitals in Wisconsin and Illinois, including in Green Bay, Sheboygan and Eau Claire, is a very conservative order, while Agnesian HealthCare in Fond du Lac is run by younger and less conservative nuns, so those systems would not have been as good of a fit, he said.

Wheaton Franciscan-St. Joseph Campus in Milwaukee.
Wheaton Franciscan-St. Joseph Campus in Milwaukee.

Wheaton’s out-of-state properties will be acquired by other entities:

  • Mercy Health Network will acquire Wheaton’s hospitals in Iowa.
  • Marianjoy Rehabilitation Hospital in Wheaton, Ill., will become part of Northwestern Medicine.
  • Franciscan Ministries, a division of Wheaton, plans to transfer its affordable housing property portfolio to Chicago-based Mercy Housing Lakefront. The transfer will include Franciscan Ministries’ current 2,620 units of housing, in addition to the pending acquisition of another 1,200 units in eight states.

Bill Petasnick, who retired in July 2012 as chief executive officer of Wauwatosa-based Froedtert Health, said being acquired by Ascension is a logical move on Wheaton’s part.

“I’m not surprised. It mirrors the consolidation among Catholic health systems across the country,” Petasnick said. “It’s the natural evolution of the Catholic system.”

Petasnick has done his homework on how consolidating two Milwaukee health care systems would affect the region. He and former Columbia St. Mary’s president and CEO Leo Brideau signed a joint operating agreement to create Progressive Health in 2008. That partnership would have closely aligned Froedtert Health and Columbia St. Mary’s, and generated an estimated $1 billion in annual revenue for the health care systems. But the agreement ended before it began due, in part, to the Great Recession.

Petasnick believes Wheaton and Columbia St. Mary’s working under the same umbrella could benefit the region, depending on how Ascension generates internal efficiencies.

“There will be back office consolidation and looking at their real estate,” he said. “A lot of the success will depend on the leadership and what urgency is dedicated to this market. The expectation is employers and patients will benefit. Time will tell whether that occurs or not.”

Ascension began growing its Wisconsin presence in April 2013, when it acquired Ministry Health Care.

Based in Milwaukee, Ministry has 15 hospitals and 46 medical clinics across the state and employs nearly 10,000 people, mainly in the Fox Valley and central Wisconsin regions.

By looking at how Ministry has been impacted over the past three years, one can get a clearer picture of how the acquisition will affect Wheaton.

In October, Ministry announced it would cut 500 full-time equivalent jobs across its statewide network by the end of November. The majority of job losses will be in support and administrative functions.

Wheaton, Ascension and Columbia St. Mary’s officials declined to be interviewed for this report.

Ascension’s human resources, supply chain and finance services are based in Indianapolis. Information technology is in St. Louis. Whether or not Wheaton’s support and administrative departments will remain in Wisconsin is unknown.

Sarah Peck, an associate professor of finance at Marquette University who specializes in mergers and acquisitions, said typically when companies merge, they are seeking efficiencies on cost.

“Wheaton is looking to leverage what Ascension has, which is more administrative and IT capacities,” Peck said. “The place where I can see job loss will be administrative functions, but that will take about three years.”

Before any decisions can be made locally, a permanent Ascension Wisconsin leader has to be named.

Longtime health care leader Vince Caponi has agreed to serve as interim Wisconsin Ministry market executive when Nick Desien, senior vice president of Ascension Health’s Wisconsin Ministry market, retires at the end of the year.

Health care experts believe Caponi will also serve as the interim leader of Ascension Wisconsin once the transaction with Wheaton closes.

When Oliverio retires, there are still three strong leaders in the Milwaukee market: Travis Andersen, who has been president and CEO of Columbia St. Mary’s since 2014; Debra Standridge, president of Wheaton ‘s north market, which includes St. Joseph’s Hospital in Milwaukee; and Coreen Dicus-Johnson, president of Wheaton’s central market, which includes the St. Francis and Franklin hospitals.

Susan Boland is president of Wheaton’s southern market, which includes the system’s All Saints Hospital in Racine.

Still, many people have speculated Ascension will bring in someone from out of state to run the Wisconsin market as a whole, even if the system continues to have a Milwaukee-based president or vice president.

“I don’t think anyone locally is capable of running a $4 billion to 5 billion statewide operation,” Mueller said. “No one locally really has the resume to make the big decisions throughout the state or the connectivity and the trust of the executives in St. Louis, particularly with the challenges ahead of them.”

In addition to the obvious challenges of having to integrate Wheaton’s 11,000 employees into Ascension’s human resources, IT and other back end systems, there are outside factors that Ascension – along with all health care systems – is still grappling with.

Changes in the way doctors and hospitals are paid, from the current “fee for service” to a fixed price to provide care to a set number of patients, is causing health systems to look at different ways of managing care.

Columbia St. Mary’s Hospital Milwaukee.
Columbia St. Mary’s Hospital Milwaukee.

There is also the issue of Accountable Care Organizations.

Integrated Health Network of Wisconsin is a group of eight Wisconsin health systems and the Medical College of Wisconsin that work with insurers and employers to offer lower priced health care. The IHN Network includes Columbia St. Mary’s, Ministry, Wheaton and Froedtert Health.

Aurora Health Care also has its own Accountable Care Organization and has agreements with Aetna and Anthem.

If employers join either the Aurora network or IHN, they commit to receiving care at only Aurora or only the health care providers in the IHN network at a reduced price. The overall goal of an ACO is better coordination, improved outcomes and lower costs.

In 2014, Froedtert and Ministry Health took it a step further, entering the health insurance business with the purchase of Network Health, a 165,000-member health plan with a reported nearly $900 million in premium revenue.

How the relationships between the health systems will be affected with this latest health system consolidation is unknown. But the combined systems of Wheaton and Columbia St. Mary’s could better position themselves to compete against Aurora Health Care, the state’s largest health care system, and Froedtert Health and the Medical College of Wisconsin.

With the closing of the Wheaton transaction, Ascension will have 27 hospitals and 150 clinics in Wisconsin, which would also make it possible for the group to form a Catholic ACO, which would be a less expensive alternative for consumers, Mueller said.

Others, including Petasnick, said it is too early to speculate about whether another insurance product will be created with this acquisition.

“I would hate to even respond to that,” Petasnick said.

Another major change will be the cultural shift both within Wheaton and, to some extent, within Columbia St. Mary’s, which had been an island hospital in Milwaukee.

In fact, before the acquisition of Ministry in 2013, many believe it didn’t make sense for Ascension to be in the state with only the Columbia St. Mary’s hospitals.

The system has continued to improve its finances by adding hospitals in core markets like Michigan and Tennessee and divesting hospitals in Arizona, New York, Washington and Idaho over the last year, so it wouldn’t have been uncharacteristic of Ascension to separate from Columbia St. Mary’s.

Instead, it has built its Wisconsin presence, first with Ministry, and now with Wheaton. Mueller believes there will be more top-down control from the home office in St. Louis.

The biggest piece of control will be with access to capital, and as a parent company, Ascension will decide where to spend its cash.

“Ascension is looking at its investments holistically – whether its medical groups or hospitals, it’s going to invest in growth markets,” Mueller said. “They have got a pretty good idea through due diligence what they are going to do differently, but they’ve actually got to get some feet on the ground to finalize the strategy and execute it.”


Wheaton Franciscan Healthcare hospitals now owned by Ascension Health

  • Wheaton Franciscan Healthcare-Franklin
  • Wheaton Franciscan Healthcare-Elmbrook Memorial Campus, Brookfield
  • Wheaton Franciscan-St. Joseph Campus, Milwaukee
  • Wheaton Franciscan Healthcare – St. Francis, Milwaukee
  • Wheaton Franciscan Healthcare-All Saints, Racine (two Racine locations)
  • Midwest Orthopedic Specialty Hospital, Franklin
  • Midwest Spine & Orthopedic Hospital/Wisconsin Heart Hospital Campus, Wauwatosa

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