Health system executives often pledge that mergers allow them to cut back costs related to buying and administrative expenses. But this transaction was spurred by “economies of innovation,” Hereford said.
“It’s not about finding economies of scale in the shape of fewer people. Our problem is we will’t find enough people,” Hereford said. “What we now have to give you the option to do is challenge our conventions about how…we deliver care and people care models, how we support caregivers, so we will proceed to supply excellent care.”
The deal would also bring expertise to rural areas in the shape of intensive care physicians and hospitalists, along with virtual services, the businesses said. Gassen said he hopes to maximise the advantages of last 12 months’s $350 million donation from billionaire banker Denny Sanford—the corporate’s namesake—to launch a virtual care center serving the Midwest.
Sanford Health reported $367.6 million in operating income on operating revenue of $7.14 billion last 12 months, up from a $311.4 million operating income on operating revenue of $6.61 billion in 2020.
Fairview Health reported a $132.6 million operating loss on operating revenue of $6.43 billion in 2021. The health system posted a $208.8 million operating loss on operating revenue of $6.08 billion the 12 months before.
There are limited data on the consequences of mergers between hospitals in numerous states. The Federal Trade Commission is commonly hesitant to challenge cross-market mergers because federal antitrust law focuses on in-state hospital mergers.
Certainly one of the few studies on the topic found that hospitals in separate service areas may give you the option to barter higher rates with insurers due to common customer bases, particularly large employers with presences in a couple of region, in line with researchers from Northwestern, Harvard and Columbia universities who published their findings in 2018.
One other evaluation of hospital merger data from 2000-2010 by the RAND Corp. and Bates White Economic Consulting researchers found that the costs charged by hospitals acquired by health systems in one other market increased 17% greater than non-acquired hospitals in those areas.
Fairview Health’s industrial inpatient and outpatient prices in Minnesota were 263% of Medicare rates for a similar services, below the state average of 297%, in 2020, in line with RAND data. Although the research firm adjusted the information for patient acuity and labor costs, hospitals argue that the conclusions are incomplete and misleading.
Sanford Health’s industrial prices in South Dakota were 191% of Medicare in 2020, below the state average of 218%.
In 2020, Sanford Health planned to merge with Salt Lake City-based Intermountain Health to create a 70-hospital system with $15 billion in annual revenue. But that deal collapsed after Sanford’s then-CEO, Kelby Krabbenhoft, said he didn’t have to wear a mask because he couldn’t transmit COVID-19 after contracting the virus.
Sanford Health proposed to merge with Des Moines, Iowa-based UnityPoint Health in 2019, but that transaction was scuttled after UnityPoint backed off.
Caroline Hudson contributed to this story.