Sanford Health is exploring a merger with Des Moines-based UnityPoint Health to create a large health system that includes dozens of hospitals and nursing homes plus hundreds of medical clinics across six states including Minnesota.
Leaders of the two groups signed a letter of intent last month to explore the merger, which they said would create a nonprofit company with more than $11 billion in annual revenue that would rank among the top 15 largest nonprofit health systems in the country.
The deal would fit with a broader merger trend in which health care groups are getting bigger on the theory that size will help them operate more efficiently and push back against cost pressures.
"I think it creates something of a regional powerhouse," said Allan Baumgarten, an independent health care analyst in St. Louis Park. "Geographically, it's a pretty good fit because there's not much overlap."
With backing from philanthropist Denny Sanford, Sioux Falls-based Sanford Health has significant operations in South Dakota, North Dakota and western Minnesota. UnityPoint Health runs hospitals and clinics in Iowa, Illinois and Wisconsin.
Kelby Krabbenhoft, president and chief executive of Sanford Health, would hold those titles at the new company. UnityPoint Health would recommend the first board chair for the merged organization. A Sanford Health spokesman said that "neither organization is taking over each other."
If the merger moves forward, it would be subject to regulatory reviews. Timelines for the deal are "fluid," leaders of the two groups said, but they intend for the transaction to be completed by the end of 2019.
The revenue projection suggests the merged nonprofit group might be larger in terms of annual revenue that Bloomington-based HealthPartners ($7 billion in 2018) and smaller than the Rochester-based Mayo Clinic ($12.6 billion in 2018).
"Sanford and UnityPoint are two successful systems intent on controlling our own destiny," Krabbenhoft said in a statement. "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."
In 2016, Sanford Health owned or operated 15 hospitals in Minnesota during 2016, according to Minnesota Department of Health. At that time, Sanford Health operated more hospitals in Minnesota than any other health system, although its overall tally of hospital beds was much smaller than at Allina Health System, Fairview Health Services, HealthPartners or Mayo Clinic.
Sanford Health has grown since then and now runs 18 hospitals and 171 clinics in Minnesota, according to a spokesman. Last year, Sanford significantly expanded the geographic reach of its operations by merging with Evangelical Lutheran Good Samaritan Society, a nonprofit with senior-care facilities in 24 states including Minnesota.
In 2018, the health system posted $172.9 million in operating income on $4.8 billion in revenue. Its operations include 44 hospitals and nearly 300 clinics.
UnityPoint Health operated last year 22 hospitals and more than 310 clinics in Iowa, Illinois and Wisconsin, according to a report from Fitch Ratings. For 2018, the nonprofit group posted operating income of $40.8 million on $4.4 billion in revenue.
UnityPoint Health has a joint venture health insurance company that is co-owned by Bloomington-based HealthPartners. Two years ago, HealthPartners announced plans to offer certain Medicare health plans in conjunction with Sanford Health for beneficiaries in North and South Dakota.
Sanford Health operates its own health insurance company, which has an HMO license in Minnesota.
The merger could help the nonprofit groups reduce administrative and operating costs, while also giving them more leverage to negotiate payment rates with health insurers, said Daniel Zismer, co-founder of Castling Partners, a health care advisory and development firm in the Twin Cities.
Most of UnityPoint Health's hospitals and clinics are in Iowa, including a large medical center in Des Moines. The health system also operates hospitals in Peoria, Ill., and Madison, Wis.
"It would give a combined organization a tremendous geographic coverage," Zismer said. "It would then provide an opportunity for their health plan products to be consolidated and distributed through that geography."
In 2013, Sanford Health failed to complete a proposed merger with Fairview that would have made the health system a large player in the Twin Cities market.
Sanford Health and UnityPoint officials said their proposed merger would create a company with more than 83,000 employees.
"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," said Kevin Vermeer, president and CEO of UnityPoint Health, in a statement. Vermeer would become senior executive vice president at the merged health system.
