Sanford Health, Fairview Health merge in $14 billion deal

Health system executives often commit that merger allows them to reduce costs related to purchasing and administrative costs. But this trade is driven by “innovation economies,” says Hereford.

“It is not about seeking economies of scale in the form of fewer people. Our problem is we can’t find enough people,” Hereford said. “What we have to do is challenge our conventions of how…we deliver care and those models of care, how we support caregivers, so that we can continue to provide excellent care.”

The deal will also bring expertise to rural areas in the form of intensive care doctors and hospitals, in addition to virtual services, the companies argue. Gassen said he hopes to maximize the benefits of last year’s $350 million donation from billionaire banker Denny Sanford—The company’s name—to launch a virtual care center serving the Midwest.

Sanford Health reported operating income of $367.6 million on operating revenue of $7.14 billion last year, up from operating income of $311.4 million on operating revenue of $6.61 billion in 2020.

Fairview Health reported an operating loss of $132.6 million on operating revenue of $6.43 billion in 2021. The health system reported an operating loss of $208.8 million on revenue operating $6.08 billion last year.

There is limited data on the impact of mergers between hospitals in different states. The Federal Trade Commission usually hesitate to challenge the consolidation of markets because federal antitrust laws focus on hospital mergers in the state.

According to researchers from Northwestern, Harvard and Columbia, one of the few studies on the subject found that hospitals in separate service areas are able to negotiate higher rates with insurance companies because: general customer base, especially large employers with a presence in many regions. The universities published their findings in 2018.

Another analysis of hospital merger data from 2000-2010 by RAND Corp. and Bates White economic consulting firm researchers found that the price at which hospitals were acquired by the health system in another market increased by more than 17% compared with hospitals not acquired in another market. those areas.

According to RAND data, Fairview Health’s commercial inpatient and outpatient rates in Minnesota are 263% of Medicare prices for the same type of service, well below the state average of 297% in 2020. Although The research firm adjusted data for patient severity and labor costs, but the hospitals deemed the conclusions incomplete and misleading.

Sanford Health’s commercial price in South Dakota is 191% of Medicare in 2020, below the state average of 218%.

In 2020, Sanford Health planned to merge with Salt Lake City-based Intermountain Health to create a network of 70 hospitals with $15 billion in annual revenue. But that the deal fell apart after then-Sanford CEO Kelby Krabbenhoftsaid he did not need to wear a mask because he could not transmit COVID-19 after contracting the virus.

Sanford Health proposed merging with Des Moines, Iowa-based UnityPoint Health in 2019, but transaction break after UnityPoint is backed up.

Caroline Hudson contributed to this story.


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