July 10, 2024
Sanford Health is making a new merger attempt, this time planning to combine with a Wisconsin-based health system that would create a combined organization with 56,000 employees.
Marshfield Clinic Health System, a century-old integrated health system based in Marshfield in central Wisconsin, is about a quarter of Sanford’s size in terms of employees. It serves 45 communities throughout Wisconsin and Michigan’s Upper Peninsula.
The combined organization would have $10.3 billion in revenue in 2023, ranking it just outside the nation’s 20 largest health systems.
The combined organization would retain the Sanford Health name and be based in Sioux Falls, with Sanford CEO Bill Gassen as its leader. Marshfield Clinic Health System would become a region within Sanford Health, similar to Sioux Falls, Fargo, Bismarck and Bemidji, led by current interim CEO Dr. Brian Hoerneman.
“Sanford Health has an appreciation for the value of good strategic partnerships,” said Gassen. “Sanford Health exists today only because of the benefit of joining with so many like-minded organizations over the years. We have seen the great benefits that come from bringing together good, mission-driven, patient-centered organizations.”
For both systems, the proposed merger follows a failed attempt to combine with other health systems. Less than a year ago, Sanford’s second attempt to merge with Minnesota-based Fairview Health Services ended with both systems deciding to end the process.
Marshfield experienced a similar outcome earlier this year after it sought to merge with Minnesota-based Essentia Health starting in 2022. They issued a joint statement that the combination was “not the right path forward for our organizations, colleagues and patients relevant”.
Sanford also completed mergers with Utah-based Intermountain Healthcare in 2021 and Iowa-based UnityPoint Health in 2019.
From the outside, “it’s going to look very familiar to people when they hear about it,” Gassen admitted.
The common factor in this case, however, is the shared culture of rural health care, he said. Marshfield is a community of less than 20,000 in central Wisconsin. The largest geographies served by the health system are in places such as Wausau and Eau Claire, which are both smaller metro areas than Sioux Falls.
“Two-thirds of the patients we serve in Sanford come to us from rural communities,” Gassen said. “We have been very open about our aspiration to be the leading rural health system in the US. It is an amazing opportunity to bring these complementary organizations together. I suspect that as we share that news it will mean a lot to people. It will fit.”
Sanford reported $7.2 billion in revenue and operating income of $402.2 million in 2023, more than double the $192.3 million it posted in 2022, and is off to “another great start” this year, Gassen said.
“I think even more important than that was our progress against our targets to continue to improve our quality and access,” he said.
Marshfield is currently implementing a financial turnaround plan after several years of losses, including $367.9 million in 2022 and $250 million in 2023.
“We’ve really made tremendous progress around addressing our financial challenges,” said Hoerneman, who became interim CEO in September 2023 but has been with the system for nearly 20 years and still practices as an emergency room physician. .
It points to the challenges of providing care in a rural geography along with declining reimbursement and rising costs of drugs, labor and supplies. According to multiple reports, the system laid off about 3 percent of its workforce earlier this year and ended up eliminating jobs, mostly clerical and managerial positions.
Part of turning around its financial performance included “finding ways to reduce cost, how we can be more efficient by looking at things like overhead, while making sure we have front-line clinical staff where they need to be.” ,” Hoerneman said.
“The financial improvement plan has been very successful in 2024. We had a positive first quarter for the first time the organization has seen this in several years, so the fact that we are on a much better trajectory from that perspective it has been a boost to the entire organization.”
Marshfield reported positive operating income of $12.6 million in the first quarter of 2024, compared to a loss of $42.1 million in the first quarter of 2023.
Fitch Ratings recently revised its 2024 outlook for Marshfield from negative to stable while maintaining a BBB rating, forecasting a positive operating EBITDA margin of 7 percent this year “as the system continues to implement a comprehensive operational improvement plan “, he said. “MCHS is starting to see the benefits of workforce efficiency, increased revenue cycle and other measures.”
The combined Sanford system would have a total of 56,000 employees, 56 hospitals, 4,300 providers, two fully integrated health plans, specialty pharmacies and nationally recognized research institutions.
“We’re really excited about the combination and the opportunity for us to move forward,” Hoerneman said. “As we’ve progressed further in our partnership, it’s become really clear how much we share culturally – values and vision for the future. We’ve had great conversations with the Sanford Health team and really gotten to know them well and just found a great degree of alignment between our two organizations.”
Between the systems’ two health plans — Sanford Health Plan and Safety Health Plan, which is part of Marshfield — 425,000 members would be served. Security is slightly larger, covering 225,000 members. Both systems noted the benefits of integration in maximizing benefits.
Marshfield Clinic Research Institute is the largest private medical research institute in Wisconsin, with more than 30 Ph.D. and MD scientists and 200 additional staff, along with 150 physicians and other health care professionals who are engaged in medical research. The combined organization with Sanford would provide access to almost 1,000 active clinical trials.
“There are many things in common from the way we see the world; will allow us to do a better job of addressing the three biggest challenges we face: how do we continue to improve access, how do we continue to improve quality, and how do we do it in a financially sustainable way,” said Gassen.
“As I have had the opportunity and the Sanford board of trustees have had the opportunity to interact with Dr. it felt really natural.”
After the merger is completed, the plan is for Marshfield to appoint three people, including an independent physician from outside the health system, to join Sanford Health’s board of trustees, increasing it to 15 members. A Marshfield board member would serve on the executive committee.
The board chairs of both organizations made supportive comments in a statement sent today.
The Chairman of the Board of the Marshfield Clinic Health System, Dr. George Brown said the partnership “marks a new chapter in our organization and we look forward to serving our patients as a nationwide leader in rural health care.”
Sanford Health board chairman Lauris Molbert called it a “win-win for the patients and communities we serve and for our organizations that have had a long tradition of innovation, physician leadership and dedicated caregivers,” added that the combination “will strengthen local, not-for-profit, patient-centered health care for generations to come.”
The merger is expected to close by the end of the year, subject to regulatory processes and closing conditions.