Salt Lake City-based Intermountain Healthcare and Sioux Falls, S.D.-based Sanford Health have proposed merging into a 70-hospital system.
The two health systems have not begun the due diligence process. However, if finalized, the merger would combine Sanford's 46 hospitals and Intermountain's 24 hospitals, including one that is virtual. More than 89,000 employees would work for the combined system.
Intermountain President and CEO Marc Harrison, MD, who would serve as president and CEO of the combined system, and Sanford Health President and CEO Kelby Krabbenhoft, who would serve as president emeritus, told Becker's they are excited about the possible merger. They shared their reasons for wanting to merge, discussed the timing of the proposed deal and offered insight into what the merger would mean for patients and both organizations.
Editor's note: Responses were lightly edited for length and clarity.
Question: When did discussions of a merger begin and what prompted them?
Kelby Krabbenhoft: I have had an unbelievable amount of reverence for Intermountain. I had heard the names of the great successional leaders, the performance, the quality, but I had never met one of the leaders there. I was out in Salt Lake City seeing one of my more intimate advisers, former Utah Gov. Mike Leavitt, talking to him about a merger I was working on in Minneapolis, and that meeting got over early. I said, "I'd like to meet Marc Harrison. I'm in his city, and it seems like the least bit of courtesy I should do."
Mr. Leavitt said, "I can arrange that." And he called Marc, and Marc and I met the next morning. I don't think it took half an hour before we both sensed a real chemistry and a trust in some of the basic values we felt about our jobs. We thought maybe we should meet again.
Dr. Marc Harrison: I have been struck by how similar the organizations are in terms of commitment to the community. We have other similarities as well. We are both economically strong. We both have worked hard to understand our community's needs and to fulfil them to the best of our abilities. Both organizations like innovation and like to try new things and can implement new things. From a distance, I have admired Sanford's commitment to rural healthcare. They do it extremely well. It is something we love as well and think it is important. They have put together a phenomenal research mission, which is interesting because it is complementary to Intermountain. Theirs is more of a bench to bedside. We are more focused on clinical implementation research. Together those can be powerful.
Finally, given my international background, I have always been intrigued by Sanford Health's international healthcare arm, Sanford World Clinic. I do not know much about them yet, but I love that they are open to not only serving in developing countries but learning from developing countries. I think that is humble and admirable.
You put all these things together, along with an aspiration for clinical transformation and for value-based healthcare delivery, and I think it is a magical formula, a once-in-a-lifetime opportunity.
Q: Mergers and acquisitions have continued amid the pandemic. For example, Orlando (Fla.) Health acquired Bayfront Health St. Petersburg from Franklin, Tenn.-based Bayfront Health, and Charlotte, N.C.-based Atrium Health and Winston-Salem, N.C.-based Wake Forest Baptist Health finalized their merger. Why is this the right time for Sanford and Intermountain?
KK: It is remarkable how maybe at the beginning of the pandemic, we may have hit some roadblocks in pursuing this merger. I do not think it would have been because of the organizations or the people involved. But it would have been because we all were getting used to working like we are on this phone call. Meeting virtually or via phone has become second nature and natural. We are having intermittent physical meetings, which are critical. But I think the technology had to mature along the same line as the pandemic, and we had to mature with it.
The other thing is the pandemic is an appropriate distraction. We are optimistic in terms of the public health crisis because of the application of vaccines. But until then, we're probably as buried as we've ever been, and to try to pull off a merger, it's a testament to the commitment Marc and I have to keep our companies close, to keep us talking. Our teams are enjoying the moment with their counterparts, and that helps. Overall, I think the pandemic will add to the long story about how this came together.
Q: What will integration look like in terms of facilities and different states?
MH: Part of going through the regulatory approval process is being two separate organizations until that process is done. We do not and are not planning anything together around how the integration works until the lawyers and regulators tell us it is OK to do so.
In general principles, though, given these two organizations are strong and growing, I certainly am not thinking in terms of shrinking service lines or collapsing down services or some things you might do as part of a merger. In fact, I'm wondering how we, at the right time, with the right planning, with regulatory approval, we could start to think about how do we expand service offerings and how do we begin to fill out the slate of things we might do together that make us fascinating and unique in terms of our clinical research educational capabilities.
Q: Intermountain and Sanford Health's insurance operations, which cover about 1.1 million, would combine under the deal. What would this combination look like and what would it mean for patients?
KK: For the last four or five years, I've been working on alternatives and strategies to try to make sense of two things: How I can get the scale that is the inescapable reality of insurance, especially with the Medicare Advantage population in a very sparsely populated region of the country? The second part of it was just as practical: How do I create a network that can reach from the Pacific to the Atlantic and to the Gulf? I need a robust network that can take care of people nationally so I can offer competitive prices. As I started talking with Marc, plus the resources that have been amassed at Intermountain, it became clear this is our solution. It is going to take work. It is going to take growth from both sides. But this was probably one of the more practically obvious elements of what we can put together. Sanford Health Plan is 25 years old. It is profitable. It is steady. But it is a Division 3 insurance company, and we have got to get to Division 1.
MH: SelectHealth, Intermountain's insurance arm, thinks a lot about affordability. As an example, SelectHealth has dropped premiums about 2 percent per year for the last two years and will do that again coming up. That is why we work hard on our cost structure, so we can pass along savings to the people we serve. I think together with Sanford's insurance operations, we may be able to be even more effective with that and do it across a broader geography.
Q: The American Hospital Association has argued that mergers are good in that they allow providers to provide better care at a lower cost to patients, but economists have argued the opposite. How do you expect the merger to affect healthcare prices in your respective areas?
KK: I have done probably about a dozen mergers of significance in the last 15 years. That analysis [by economists] and that reality does not exist in my experience. We have been able to take prices to a low level. We have been able to freeze insurance prices for our employees and our subscribers or reduced fees/premiums. I think that is a function of sometimes where these mergers take place geographically, and what the priorities of those mergers might be. In our case, before we even consummate the merger, we present a plan to both boards that reveals exactly the effect the merger will have on prices. We are price takers. Medicare sets the price; we must take it. The state's Medicaid program sets the price, we take it. Negotiations with other major insurers are usually premised on a prior price point. This is not our practice to go in there and raise costs.
MH: I'm unaware of this kind of merger happening like the one Intermountain and Sanford are pursuing, where there's an explicit plan around transforming toward value over time, because I think almost inevitably, if that's done in a nonprofit setting, that should lead to overall lower total cost of care, which will be to the advantage of the communities we're in. It is not going to happen overnight, but that is the path Intermountain is on, and I respect the fact Kelby has been able to get Sanford on that path as well. I think it is different than other mergers. I think the other thing that is nice is this is not one organization that is distressed and another that is strong, not two that are distressed. These are two healthy organizations that are coming together, and I think that is different.
Q: What are the next steps in the merger process?
KK: We signed a letter of intent. That kicks the ball off as far as an authoritative statement that says, "Let us get organized to get a definitive agreement," which we are shooting for in December. That would put us on a timeline, due to regulatory realities. Then we have various attorneys general that must weigh in. The bottom line is we are looking at probably this summer. July 1 is our tentative go-live date.