Aspirus Health plans to extend its reach into Minnesota by joining forces with St. Luke’s Duluth.
Wausau, Wisconsin-based Aspirus and St. Luke’s Duluth, a two-hospital system based in Minnesota, signed a letter of intent to combine via a member-substitution agreement, the nonprofit systems said Wednesday. The proposed transaction would expand Aspirus’ 17-hospital network in northern and central Wisconsin and Michigan’s Upper Peninsula to Minnesota, while St. Luke’s Duluth would increase its borrowing capacity and gain access to Aspirus’ health plan.
“The strength of Aspirus Health will enable St. Luke’s to accelerate investment in our communities and expand our impact faster than we can on our own,” Eric Lohn, St. Luke’s Duluth co-president/CEO and chief financial officer, said in a news release.
The system would be headquartered in Wausau and maintain a corporate office in Duluth, pending a definitive agreement and customary regulatory review and approvals. Aspirus and St. Luke’s Duluth expect the proposed deal to close in early 2024.
Upon closing, Aspirus would become the sole corporate member of St. Luke's Duluth, an Aspirus spokesperson said in a statement. While the organizations are still working on the composition of the regional and system boards, the intention would be to transition St. Luke's Duluth board to a regional board, and a to-be-determined number of St. Luke's Duluth board members would join the system board, the spokesperson said.
Organizations are looking to form cross-market health systems resembling the Aspirus and St. Luke's Duluth proposed transaction as they seek to increase the number of patients they treat. While data on the effects of cross-market mergers are limited, early results show hospitals in separate service areas may be able to negotiate higher rates with insurers due to a common customer base—often large employers demanding insurance coverage for their employees who live in different regions.
The Federal Trade Commission has been less likely to challenge cross-market mergers, because antitrust law focuses on in-state hospital mergers and minimal legal precedent exists for cross-market deals.
Duluth, Minnesota-based Essentia Health and Marshfield Clinic Health System in Wisconsin signed a letter of intent to merge in October. The health systems "continue to make progress as [they] discuss the potential of combining the two health systems," an Essentia spokesperson said in a statement.
Sioux Falls, South Dakota-based Sanford Health and Minneapolis-based Fairview Health Services are also engaged in merger talks, although a new Minnesota law threatens the transaction. The law, which bans out-of-state entities from controlling University of Minnesota healthcare facilities, will not deter the deal because the proposal meets the requirements, a Fairview spokesperson said in a statement.
Aspirus reported $47.1 million of operating income on $1.88 billion of revenue in its 2022 fiscal year ended June 30, according to its unaudited annual financial statement. That was down from $134.5 million of operating income on $1.47 billion of revenue in 2021.
St. Luke’s Duluth reported $2.9 million of operating income on $560.1 million of revenue in 2022, according to its audited annual financial statement for the period ended Dec. 31. That was down from $13.3 million of operating income on $547.3 million of revenue in 2021.
Clarification: An earlier version of the story stated that two St. Luke's board members would serve on the system board. The number has yet to be determined.
