Marshfield Clinic, Essentia Health agree to merge

Marshfield Clinic Health System and Essentia Health of Minnesota are merging.

The official announcement came late last week, as the two health care systems announced the signing of an agreement to form a new integrated regional health system serving rural and mid-urban communities across four states.

Marshfield officials say the agreement is the latest step in a process that keeps the organizations on track to come together formally by the end of this year, pending regulatory approval.

“Discussions the past few months have made it clear that this is an incredible opportunity to enhance both health systems, solidify our futures, and take patient care and services to an even higher level,” said Dr. Susan Turney, who is stepping down as Marshfield’s CEO this fall. “It represents an opportunity to expand access to care, diversify the services we provide and deepen our community-based work.”

Essentia Health CEO Dr. David Herman, who will serve as chief executive officer of the new parent company, said that both organizations are physician-led with an unwavering commitment to the health of rural communities.

“Our complementary capabilities will allow us to learn and share with one another to better achieve our collective mission,” Herman said.

By joining together, Essentia and Marshfield Clinic will combine the strengths of both organizations in Wisconsin, Minnesota, Michigan’s Upper Peninsula, and North Dakota. Officials say the new regional system will bring greater access to primary, specialty, and hospital care through a diverse network of 3,800 providers and 150 sites of care, including 25 hospitals.

Turney and Herman also said that through the merger, both organizations will be better positioned to navigate current and future challenges to health care — especially rural health care — as well as preserve the sustainability of high-quality care in communities.

“While work remains to finalize our new relationship, this is another positive step in our journey to define the future of health care, and to fundamentally transform rural health care in America,” Turney said.

The integration agreement was preceded by the signing of a memorandum of understanding in October 2022.

The announcement comes at a troubling time financially for Marshfield, which suffered a major downturn in fiscal year 2022, its operations bleeding into the red by nearly $368 million, its cash on hand plummeting by more that 25 percent over the previous year, and its income levels falling below the minimum required by a debt service covenant.

The bleeding continued into 2023, as the system first reported a 4.2 percent first quarter operating margin loss of $32.6 million. That ranked the System just 26th out of 30 large ranked hospital systems in the country.

On July 7, in a revised filing, Marshfield announced that first quarter numbers were even worse than that with losses totaling $42.1 million, increasing its operating margin loss from the originally reported loss of 4.2 percent to 5.4 percent.

Total expenses rose from an originally reported $812.3 million to $819.3 million, while revenues declined to $777.2 million. The adjustment totaled a reduction of $9.5 million in net operating income from the original first quarter report.

Marshfield officials have attributed the mounting financial woes to ongoing inflationary pressures and problems arising from the implementation of a health records system, as operating margins for hospital around the country continue at below normal averages.

However, consultants hired by the system also flagged lagging physician productivity, inefficiencies in revenue cycle management and inpatient care, and the need to reduce staff size and salaries.

Earlier this year, the System’s credit rating was downgraded both by Fitch and S&P Global.