Dakota deal

The possible formation of a union between two of the most prominent healthcare systems in North and South Dakota may be the latest sign that merger mania is spreading through the U.S. healthcare system.

The proposed “merger of equals” that would combine Sioux Falls, S.D.-based Sanford Health and Fargo, N.D.-based MeritCare Health System is being reviewed by North Dakota Attorney General Wayne Stenehjem. It also continues a steady stream of hospital deal announcements in the first part of 2009 (Aug. 17, p. 6).

A spokeswoman for Stenehjem said his office cannot comment until a decision is made on whether to allow the deal to go forward, but Mark Johnston, Sanford vice president for corporate communications, said no problems are anticipated, and the deal is expected to close around the first of the year.

In July, the boards of the two organizations signed a nonbinding letter of intent to create one organization that would have some $700 million in cash reserves. Sanford’s 330 physicians and 7,801 other employees take care of a coverage area that includes east South Dakota, northwest Iowa, southwest Minnesota and northeast Nebraska. MeritCare’s 479 doctors and 6,190 other staffers service east North Dakota and northwest Minnesota.

Sanford’s service area, also known as “Sanford Country,” has a population of about 1 million people, as does MeritCare’s, Johnston said. He explained that both systems had just about reached the threshold of services that each could provide individually, so the merger now creates the opportunity to add services that patients currently have to travel outside of the area to receive.

The new organization will be called the Sanford-MeritCare Health System and will be led by Sanford President and CEO Kelby Krabbenhoft. Roger Gilbertson, MeritCare’s first—and only—president and CEO, had announced earlier this year his intention to retire.

The merger is only part of Sanford’s growth strategy. A new children’s hospital on its main campus opened in March and work will soon begin nearby on a new stand-alone $75 million heart hospital. In recent months, Sanford has bought hospitals in Worthington, Minn., and Canton, S.D., that it was previously contract-managing or leasing, respectively, and is now negotiating a $3.3 million deal to buy a 20-bed hospital in Jackson, Minn., that it has been leasing.

“It’s really a convergence of a lot of opportunities,” Johnston said of the expansion activities.

Part of Sanford’s ability to take advantage of opportunities stems from the $400 million gift it was pledged in February 2007 from credit card magnate T. Denny Sanford. Johnston said the intent is to keep most of the gift “intact for generations” while using the proceeds from its interest and investments to fund initiatives such as a North American network of children’s clinics and research efforts to find a cure for Type 1 diabetes through cell regeneration.

Though no one really knows what a Sanford-MeritCare merger would bring, that hasn’t stopped people from discussing it, said Jerry Jurena, who took over as president of the North Dakota Healthcare Association this month.

“You have some people who like it and say ‘This is great. We’ll be getting more services.’ And there are others saying ‘They’re selling out to South Dakota,’ ” Jurena said. “But it is just water cooler talk. They don’t have the facts. They haven’t walked in the providers’ shoes.”

Jurena said he had a meeting scheduled with Gilbertson on Aug. 21, and it would be difficult to form his own opinion until then, but he added that “often in smaller communities, if they didn’t have mergers, you wouldn’t have healthcare.”

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