Sanford Health, UnityPoint Health Explore Hospital Merger Deal

July 01, 2019 - Sanford Health and UnityPoint Health signed a letter of intent to explore a hospital merger deal that would create an $11 billion integrated system in America’s Heartland, the two organizations announced on Friday.

The combined health system would rank among the top 15 largest non-profit health systems in the country, employing more than 83,000 staff and 2,600 physicians across 26 states and nine countries. The system would include hospitals, clinics, health plans and networks, and post-acute care,  as well as research, innovation and other lines of business.

“Sanford and UnityPoint are two successful systems intent on controlling our own destiny,” Kelby Krabbenhoft, president and CEO of Sanford Health, stated in the announcement. “We believe that in the very near future, fully integrated health systems will drive greater value through affordable options for high-quality health care to patients, governments and employers. The combination of Sanford and UnityPoint will help both organizations better meet this need, creating a new system positioned for continued growth across a broad geography.”

Krabbenhoft would lead the combined health system, serving as president and CEO, while UnityPoint Health’s current president and CEO Kevin Vermeer would act as senior executive Vice President.

 “Our organizations share a deep commitment to exceptional patient care and a vision for transforming and sustaining health care in our communities,” said Vermeer in the announcement. “We are approaching our discussions very purposefully, with a clear and common vision for success. First and foremost, our focus is on people. Working together, we will find new ways to broaden access to care – beyond the traditional settings – and take greater responsibility for the health of the populations we serve.”

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One of the purposeful steps the two organizations are taking is creating a new governing board comprising representatives from both legacy organizations, as well as additional unaffiliated board members.

Additionally, the organizations plan to continue to run their respective fully-integrated medical groups and maintain their existing relationships with independent physicians, hospitals, and other healthcare partners.

“As trusted health care brands with deep Midwestern roots, our organizations have worked hard to establish strong relationships in the communities we serve, whether that be a small rural town or a location across the globe. Together, we will build on these relationships to create new opportunities to meet unique community needs and thrive in an ever-changing environment,” said Vermeer.

UnityPoint Health and Sanford Health expect to close the hospital merger deal by the end of 2019, pending regulatory reviews.

The UnityHealth Point-Sanford Health merger announcement may not come as a shock to many industry experts. Hospitals and health systems have been rapidly consolidating, and the deals are getting larger, consulting firm Kaufman Hall recently reported. In fact, the firm found that the average size in revenue of sellers grew at a compound annual growth rate (CAGR)of 13.8 percent since 2008, reaching $409 million by 2018.

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“What we’re seeing is a move toward strategic growth, driven in part by the need to acquire expertise and resources to manage the industry-wide changes facing hospitals and health systems,” Anu Singh, managing director at Kaufman Hall. “These include changes in payment and care delivery models and the push for greater value, but also the emergence of new competitors that bring significant capital resources and strong capabilities in both digital technology and consumer experience to healthcare.”

Rural hospital and health systems like Sanford Health have particularly experienced issues with adapting to industry-wide changes, such as value-based reimbursement and increased competition. A recent analysis conducted by Navigant showed that 21 percent of rural hospitals are at high risk of closing because of their overall unstable financial positions.

Hospital mergers are helping many rural healthcare providers survive. A recent study found that mergers were common rural providers, with approximately 12 percent of all rural hospitals merging from 2005 to 2016 and some even merging more than once during the period.

Sanford Health has even participated in past mergers, including a deal with long-term care provider The Evangelical Lutheran Good Samaritan Society, which closed in early 2019. The rural health system also attempted to acquire Mid-Dakota Clinic, Pc, a multispecialty physician group in North Dakota. However, the FTC recently won its case against the purchase.

But the recent rural hospital merger trend is raising concerns for some industry experts. Research conducted for The New York Times showed that hospital prices increase between 11 and 54 percent following hospital consolidation.

Hospitals and health systems argue that merger deals allow their organizations to continue delivering care to their communities. But whether the transactions will result in lower costs or even improved patient care will take time to see.