Dive Brief:
- South Dakota-based Sanford Health and Wisconsin-based Marshfield Clinic are in merger discussions that could close by the end of the year, the systems said Wednesday.
- The nonbinding discussions come as both systems try to move on from failed merger efforts. Sanford has attempted to form a cross-market system three times in recent years, while Marshfield scuttled its own deal with Duluth, Minnesota-based Essentia Health in January.
- The deal, which is subject to regulatory approval, would create a 56-hospital system with two integrated health plans under the Sanford name.
Dive Insight:
Sanford has sought to expand via merger three times in recent years — with UnityPoint Health in 2019, Intermountain Health in 2020 and Fairview Health Services in 2023.
The health system abandoned merger talks for different reasons, ranging from an abrupt leadership change in 2020, when former CEO Kelby Krabbenhoft departed amid controversy over his anti-masking stance, to pushback from Minneapolis leaders over out-of-state ownership of University of Minnesota facilities in 2023.
However, the failures haven’t soured Sanford on M&A.
“We are who we are today because of combinations with care delivery organizations in rural communities across America’s heartland,” said Sanford’s CEO and president Bill Gassen in a statement to Healthcare Dive.
The deal would extend Sanford’s reach into Wisconsin, where it currently operates no facilities. In total, the system would employ nearly 56,000 people across 56 hospitals and more than 250 clinics, according to the press release.
Under the proposed deal, the systems will combine under Sanford Health, with Marshfield maintaining regional branding and leadership. Marshfield’s interim CEO, Brian Hoerneman, would serve as president and CEO of the Marshfield region, while Sanford’s CEO would remain chief executive.
Cross-market mergers have become increasingly popular, making up 55% of hospital M&A ventures between 2010 and 2019. Health systems argue they help expand systems’ geographic reach and can offer synergies by allowing them to share expenses.
Financially pressed Marshfield also stands to benefit from the deal. In January, Essentia called off merger talks due to Marshfield’s precarious financial status, according to statements from Essentia to the Duluth News Tribune.
Since then, Marshfield has shuttered its Park Falls Home Health and Hospice facility due to “limited resources,” received a ratings downgrade from S&P Global Ratings due to “heightened and ongoing” operating losses and conducted layoffs.
Although Marshfield has faced operational struggles, it may be an attractive partner for Sanford — which netted $402 million on operations in 2023 — in part due to its location.
While the Minnesota attorney general challenged Sanford’s last cross-market merger, Wisconsin regulators have taken a permissive approach to healthcare tie-ups in recent years.
The state allowed Froedtert Health and ThedaCare to merge without challenge in 2023, and let the $27 billion cross-market merger between Advocate Aurora Health and Atrium Health sail through in 2022.
Still, cross-market mergers have been met with growing skepticism federally as evidence mounts suggesting the tie-ups often lead to rising consumer prices.
The Federal Trade Commission has signaled increased interest in reviewing the transactions. In December, the FTC and Department of Justice unveiled new guidelines for reviewing healthcare deals that experts say could allow them heightened access to cross-market transactions.
