Chicago-area Alexian Brothers Health System and Adventist Midwest Health signed a non-binding letter of intent to form a joint operating company, a collaboration commonly referred to as a virtual merger. As Alexian brings five hospitals to the agreement and Adventist brings four, the health systems combined would create the third-largest network of hospitals in the Illinois area.

The joint operating agreement type of affiliation is intended to unify operations—enabling cost efficiencies—while retaining a level of independence for each of the partnering health systems. Structurally, participating health systems generally retain their separate boards of directors, identities, and some amount of management and financial authority. There is no transfer of assets and, therefore, no true merger.

Most of the time joint operating agreements give rise to a new corporation: a joint operating company. This serves as the primary management and financial authority. Joint operating companies are not exempt from antitrust review.

In the case of Alexian and Adventist, the joint company would have its own governing board and would combine corporate operations of the two systems. Alexian and Adventist would maintain separate ownership over their assets and financing. They would also retain their respective faith-based identities and missions.

Last year, Adventist partnered with the Alexian Brothers Accountable Care Organization, a Medicare Shared Savings Program (MSSP) ACO. It was one of 106 ACOs added to the MSSP program for the third performance period beginning January 2013. More recently, Alexian announced it would be suspending its efforts to launch a Medicaid accountable care entity. (Half of Illinois’ 2.9 million Medicaid beneficiaries are to be enrolled in some form of managed care, such as an accountable care entity, by 2015.)

A definitive agreement for the joint operating company, once one is developed, will be subject to approval from the Illinois Health Facilities and Services Review Board. Alexian and Adventist anticipate that, if the necessary approvals are obtained, the partnership will be complete by early fall.

This article was written with contributions from Rachel Landauer.