Sanford Health eyes Edward-Elmhurst Health for potential merger

Edward-Elmhurst Health could be headed for a merger with an out-of-state partner.

A Sioux Falls, S.D.-based hospital system says a deal with a Chicago-area target could be completed by year-end. Although Sanford Health did not identify the party, CEO Kelby Krabbenhoft described it as a $1 billion healthcare organization—a description that best seems to fit Edward-Elmhurst, which had $1.3 billion in patient revenue last year.

A healthcare industry analyst in Minneapolis, Allan Baumgarten, said Naperville-based Edward-Elmhurst is his "best guess" as the likely target.

The talks were reported this week by the digital news organization SiouxFalls.Business. A spokesman for Sanford declined to comment further or make Krabbenhoft available for an interview.

"It has always been and continues to be our position that we, like many healthcare providers, should evaluate strategic opportunities on an ongoing basis," said Edward-Elmhurst spokesman Keith Hartenberger. "While we have no immediate plans to partner with another organization, we continue to look at options that might benefit our community and strengthen our health system."

SiouxFalls.Business reported the potential merger in Chicago involves a "West Side health system."

Other systems with operations on the west side and in the western suburbs include Loyola University Health System and Rush University Medical Center, though both are larger than Edward-Elmhurst. Spokespeople for both said their institutions were not involved in talks with Sanford.

The long-distance affiliation would surmount antitrust issues that have stymied same-market mergers, including plans by Advocate Health Care and NorthShore University HealthSystem that were blocked last year. Turmoil in health insurance markets is driving consolidation, as is mounting volume of unpaid patient bills. Downers Grove-based Advocate was successful in engineering a cross-border merger with Milwaukee's Aurora Health Care earlier this year.

Another successful transaction—between Northwestern Memorial HealthCare and Centegra Health System in Crystal Lake, effective Sept. 1—will bring increased competition to west and northwest suburban systems like Edward-Elmhurst. It has three units: Edward Hospital and Linden Oaks Behavioral Health in Naperville and Elmhurst Hospital.

Edward-Elmhurst continues to expand facilities despite a $92 million accounting error that forced restatement of results back to fiscal 2016 and $50 million in budget cuts that forced layoffs and other cuts totaling about 250 positions.

Revenue is rising, from $1.02 billion in fiscal 2014, but so are operating losses. A $4 million loss in 2016 turned into a $15 million loss in 2017, more than offsetting the combined $10 million gain during the previous two years. The system lost another $15 million during the first six months of the fiscal year that ended in June.

Sanford, meanwhile, is booming. With 44 hospitals and 300 clinics in nine states and nine countries, "they have ambitions to grow and deep pockets," said Baumgarten.

Sanford has a pending deal with Sioux Falls-based Evangelical Lutheran Good Samaritan Society that surmounted antitrust issues, and it also has its eyes on Minnesota, where Baumgarten said two forays have been sunk by opposition from doctors, labor unions and the Minnesota attorney general.

Krabbenhoft told SiouxFalls.Business that Sanford's board could approve a Chicago deal soon.

"I'm really looking forward to being able to name them," he said.

"A potential buyer scouts Chicago-area hospitals—but which one?" originally appeared in Crain's Chicago Business.