Marshfield Clinic, Sanford Health aim for year-end merger

After two previous failed merger attempts, Marshfield Clinic Health System is hoping the third time will be the charm, as the ailing health care giant recently announced a merger with Sanford Health, which has a number of failed mergers under its belt as well.

Marshfield most recently attempted to join with Essentia Health of Minnesota, but that planned combination was called off because of Marshfield’s wobbly financial situation. A proposed merger with Gundersen Health failed in 2019.

Sanford’s ill-fated attempts include with UnityPoint Health in 2019, Intermountain Healthcare in 2020, and Fairview Health Services in 2023. Headquartered in Sioux Falls, South Dakota, it remains the largest rural health system in the United States.

Dr. Brian Hoerneman, the interim CEO of Marshfield Clinic Health System, said the partnership would bring together two physician-driven organizations.

“Partnering with Sanford Health presents an incredible opportunity for our organizations to unify and establish the premier rural health system in the nation,” Hoerneman said. “Together, we will ensure sustainable access to exceptional care for our communities for years to come. With a shared mission to serve, a mutual emphasis on research and education and a strong tradition of physician leadership, Sanford Health is the ideal partner for this endeavor.”

Bill Gassen, president and CEO of Sanford Health, said Sanford was excited to combine the two systems’ common purpose to solve the most pressing challenges facing rural health care.

“We are who we are today because of combinations with care delivery organizations in rural communities across America’s heartland,” Gassen said. “These opportunities have allowed us to follow through on our promise to deliver world-class health care to every patient we serve no matter their ZIP code, and we are eager to continue building on this track record with Marshfield Clinic Health System.”

Gassen said the partnership would bring together two strong physician-driven organizations, each with a reputation for excellence in quality, safety and patient experience. He said he hopes that, together, the combined organization will lead the way in research with an emphasis on underrepresented populations, while fostering a healthy operating performance and putting patients, people, and communities at the forefront.

The combined system will bring together nearly 56,000 employees, 56 hospitals and 4,300 providers across the Midwest, as well as two fully integrated health plans, specialty pharmacies and nationally recognized research institutions. The name of the parent company will be Sanford Health, with system headquarters in Sioux Falls, South Dakota. 

Marshfield Clinic Health System will be a region within Sanford Health and maintain regional leadership with its flagship medical campus in Marshfield, a regional board of directors, a regional physician executive council and regional brand presence. Gassen will serve as president and CEO of the combined system. Hoerneman will serve as president and CEO of the Marshfield Clinic Health System region.

Over the last decade, Sanford Health says it has invested more than $1.5 billion in communities across South Dakota, North Dakota, Minnesota and Iowa including expanded access to specialty care and state-of-the-art facilities.

According to the two systems, the nonprofit combination will increase access to nearly 1,000 active clinical trials and clinical studies and combined research expertise to bring new treatments and cures to patients. The systems also look to expand capabilities that allow for greater investment in clinical needs, directly supporting patients, providers and communities.

In addition, the combined systems expect to undertake shared initiatives, including graduate medical education programs and strong partnerships with educational institutions throughout both regions.

Finally, they hope to create new opportunities for research and collaboration, robust peer networks and enhanced professional development and training.

The deal is expected to close by the end of the year, subject to regulatory processes and closing conditions.

Fingers crossed

Of course, the closing date and conditions, not to mention the regulatory processes, are where past merger agreements have broken down. The merger announcement emphasized that the memorandum of understanding to combine complementary assets and capabilities and create an integrated health system was non-binding, meaning the whole deal could conceivably collapse, as previous efforts have.

Meanwhile as The Lakeland Times has previously reported, Marshfield Clinic has struggled financially over the past several years. This past January the system issued notices to approximately 3 percent of its staff that they were being temporarily furloughed, and in April those employees found out the ‘temporary’ part was right — the company informed them they were being permanently laid off.

“This group of employees was notified of being furloughed in January 2024,” Marshfield’s communications director, John Gardner said, said in April. “We are committed to supporting affected employees during this transition period, assisting them with a severance package, and ensuring they have access to any available resources and assistance, including encouraging them to review other opportunities within the Health System in areas with specific needs.”

Since January, Gardner said then, more than 60 furloughed employees pursued and attained alternative employment opportunities with the clinic’s system, and “dozens more opted to take roles outside the organization.”

When Marshfield announced the furloughs, it said the purpose was to curb high personnel costs in an attempt to reach new financial turnaround targets. At the time, staffing costs totaled more than half of the system’s operating costs.

Meanwhile, a March 27 financial update on the Marshfield’s Minocqua region showed the company — at least in the region — was still bleeding red ink and missing its budget goals by wide margins.

In the month ending January 31, for instance, Marshfield’s gross patient revenue totaled $32,473,609, below its budget target by $302,872, or .9 percent below target. Total operating revenue was some $2 million below the budgeted estimate — $10,071,120 actual to a budget of $12,101,798.

On the expense side, though, the region was on the money, with total operating expenses of $12,887,326 nearly equal to the budgeted expectation of $12,885,121.

Specifically, salaries and benefits grew by 2.2 percent compared to budget, or $122,773 over the budgeted amount. “Other expenses’ languished behind the budget target by close to $50,000.

Overall, the bottom line was bleak, given sagging revenues. The system lost $2,816,206 compared to an expected budget loss of $783,322, or about $2 million more red ink for the region than Marshfield expected. 

The region’s loss equaled 27.96 percent of operating income, when the system had expected a loss of just 6.47 percent of operating income.

In March, too, S&P Global Ratings lowered Marshfield’s long-term rating and its underlying rating to ‘BBB’ from ‘BBB+’, the credit ratings firm announced.

“The outlook is negative,” the March 22 credit report stated. “The downgrade reflects our view of Marshfield’s continued challenged performance and a balance sheet with less flexibility due to declines in net assets as well as moderately higher debt levels due to issuances needed to maintain liquidity.”

Specifically, the analysis stated, the lower rating reflects difficulties in labor as well as the effects of executing its inpatient acute-care strategy over the last several years, as well as transitioning related IT systems, along with the external stress of COVID-19. 

“Due to some of these issues, debt has increased, including last year’s 2023 issuance to support liquidity, that, along with declining net assets, has pressured the balance sheet,” the report stated. 

Marshfield’s collapsed talks to merge with Essentia Health of Minnesota also contributing to the ratings decline, along with Marshfield’s past aggressive expansion efforts.

“While we believe the interim management team (along with consultants) is making strides in performance improvement initiatives and optimizing various IT systems, the organization is still in transition as it actively searches for a partner following the end of the definitive agreement with Essentia Health in January 2024, and as it looks to stabilize the organization after the build-out of the inpatient hospital expansions of the last several years,” the analysis stated.

According to the report, Marshfield’s tentative partnership with Essentia ended due to different operating cultures and not due to regulatory issues.

“Marshfield management is actively in pursuit of finding a new partner (with a request for proposal [RFP] process in place) and could close as soon as the end of the calendar year,” the report stated. “We view this as an aggressive timetable, but also recognize that the team has much of the information needed to move more quickly due to the previous partnership agreement with Essentia.”

With last week’s announcement, it seems Marshfield just might achieve its end-of-year goal — if it sticks.

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.