Practice Management News

Gundersen, Marshfield Clinic Call Off Rural Hospital Merger Plan

The Wisconsin-based health systems abandoned hospital merger plans after 7 months of deliberation due to the complexity of the deal.

Hospital merger

Source: Getty Images

By Jacqueline LaPointe

- After seven months of discussions, Gundersen Health System and Marshfield Clinic Health System nixed a hospital merger plan to create a rural health system of more than 2,000 clinicians across Wisconsin, northeast Iowa, and southeastern Minnesota.

In a joint statement released on Dec. 19, the two Wisconsin-based health systems explained that the decision to remain independent came after “several months of productive, collaborative discussions” on how the systems can collaborate to improve the level of care in their communities.

“This was an opportunity we had to explore. Yet, we have to make the right decision for our patients and for our organizations,” Scott Rathgaber, MD, CEO of Gundersen Health System, said in the statement. “We each still have a commitment to delivering the best care possible to those we serve. We will continue to improve the health of our communities, while working to reduce the cost of care and offering an outstanding experience for those in our care.”

Marshfield Clinic Health System’s CEO Susan Turney, MD, added that combining the two health systems provide to be an “incredibly complex process.”

“[F]irst and foremost in that process is making sure it was the best path forward for our patients, staff and communities,” she said in the statement. “While we mutually decided to remain independent, we will continue to execute our strategy of smart growth as we look for opportunities to ensure residents across rural Wisconsin have access to excellent health care close to home.”

The health systems reassured patients that providers will continue to individually focus on improving access to care in rural areas through telehealth services, critical access hospitals, and clinics in small communities. The systems will also still partner on current initiatives, such as the Wisconsin National Community Oncology Research Program, which aims to improve patient access to cancer clinical trials.

The Gundersen-Marshfield Clinic merger was slated to be one of the major hospital mergers of 2019, according to consulting firm Kaufman Hall. In July, the firm listed the hospital merger announcement as an example of the recent mega-merger trend.

Mega mergers involve transactions in which the seller has $1 billion or more in annual revenue. According to data from Definitive Healthcare, Gundersen Health System has over $1.1 billion in net patient revenue, with total revenues reaching over $1.2 billion, while Marshfield Clinic Health System has approximately $466 million in total revenues.

Last year, Marshfield Clinic Health System reported first-quarter losses of $17 million. The financial losses stemmed from lower reimbursement to its health plan from a lack of reinsurance under the Affordable Care Act and cost-sharing reduction payments. Payer mix shifts and higher supply chain costs within its care delivery system also impeded earnings at that time.

Hospital mergers have been a path forward for organizations facing new financial challenges. Hospital merger and acquisition activity hit a record high in 2017, with 115 transactions announced. Since then, the number of deals remains high, with 90 announced in 2018 and 71 announced through the third quarter of 2019.

Value-based care, reduced reimbursement rates, new competitors, and other trends are pushing hospitals and health systems to consider strategic affiliations and partnerships in order to survive in the changing healthcare landscape.

Marshfield Clinic Health System, for example, considered a hospital merger deal with Gundersen Health System earlier this year to manage “disruption in the industry and competitive nature of healthcare.”

“This merger would give us an opportunity to combine the unique strengths of our systems to become the preeminent rural healthcare organization in the country,” Turney stated at the time.

Many hospitals and health systems, however, are realizing that successfully completing a merger can be complex, especially when the merging entities are large and have overlapping markets. Iowa-based UnityPoint Health and Sanford Health in South Dakota also called off their plan to create an $11 billion health system earlier this year. The combined system would have spanned 26 states and nine countries.

Hospital merger and acquisition activity is unlikely to abate as providers face similar financial challenges in 2020. However, the success rates of these deals could hit a snag as organizations seek to combine in a stricter regulatory environment.