Rural Minnesota provider Sanford Health merging with system based in Salt Lake City

Sanford Health, a major provider of rural health care in the western half of Minnesota, announced plans Monday to merge with a another major regional system based in Salt Lake City.

If approved by regulators next year, the merger of the two nonprofit integrated hospital networks would create a 70-hospital health system with 89,000 employees and a presence in two dozen states across the Midwest and Great Plains. It would be led by Intermountain Healthcare's chief executive, Dr. Marc Harrison.

"This merger is the next phase of being a forever organization," Harrison said. "It will provide us with size, scope and resiliency to be able to not only weather the current health care and economic environment. It provides us the tools to thrive. We have no desire just to exist. We have a desire to lead."

Sanford CEO Kelby Krabbenhoft said Monday that the two health systems are very similar, with their employee and patient bases reaching both urban and rural areas in multiple states.

Unlike most health systems, Sanford and Intermountain run their own insurance plans. Krabbenhoft said the strength and size of Intermountain's health plan was a key driver behind the entire deal.

"We're almost identical twins, in terms of the health care delivery side. It's the insurance piece that has challenged Sanford in recent times," Krabbenhoft said at a news conference Monday. "We've had an insurance company for 25 years … but we're stuck. To grow outside this region with our insurance in a mobile society has become a daunting challenge for Sanford Health."

Harrison and Krabbenhoft said the merger would combine two health systems that are performing well and are aiming to solidify their place in the future.

The boards of directors at both systems have approved a resolution to each side to thoroughly research the proposal and eventually sign a formal merger agreement to bring the two systems together. Any deal would need approval from state and federal regulators, likely in 2021.

Despite their similarities today, Sanford and Intermountain come from different backgrounds.

The organization now known as Sanford Health began in earnest with South Dakota's first hospital, Sioux Falls Lutheran Hospital, which opened in 1900. The organization got its name after a $400 million charitable gift from South Dakota businessman and philanthropist T. Denny Sanford in 2007.

Mergers have been a source of growth for Sanford through the years, including successful tie-ups with Fargo's MeritCare Health System in 2009 and Bemidji's North Country Health Services in 2011. Sanford became the largest rural health system in the country after the MeritCare deal.

Not all of its proposed deals have come to fruition. Last year, Sanford pulled out of a planned $11 billion merger with Des Moines-based UnityPoint Health. And in 2013, Sanford ended talks to combine with Minneapolis' Fairview Health Services after opposition from legislators and Attorney General Lori Swanson.

Sanford Health had $3.9 billion in revenue and $3.8 billion in expenses in the year that ended in June 2018, the most recent period for which tax filings are available. Minnesota's Medtronic was one of its largest single contractors, with more than $41 million in compensation that year.

Intermountain traces its history to 1975, when the Church of Jesus Christ of Latter-day Saints donated 15 hospitals to their respective communities, and Intermountain was formed as a secular not-for-profit to run them.

The system is known nationally for its early focus on quality-improvement efforts.

In the 1980s, Intermountain devised systems to measure patient outcomes and practice variation, and use those data to oversee care delivery, driving down costs and improving care quality, the system wrote in an article in Health Affairs. The system aspires to be a "model" health system.

Intermountain had $6.6 billion in revenue and $6 billion in expenses in 2018, the most recent data available say. Its largest single contractor that year was Chicago-based health care debt collection firm R1 RCM, which Intermountain reported paying nearly $132 million.

Combined, Sanford and Intermountain would operate 70 hospitals, 435 medical clinics and 366 senior-care centers, as well as insure 1.1 million people.

The new organization would be legally domiciled in Salt Lake City, but would keep its corporate offices in Sioux Falls. Krabbenhoft would become president emeritus if the deal goes through.

The CEOs said the deal is a true merger of nonprofit organizations — no money is changing hands between them.

The boards of both organizations would be combined into a single entity composed of most of the current members, with Intermountain's chairwoman becoming the first chair of the new organization.

The organizations intend to operate under their current names for the foreseeable future.

Asked whether other mergers involving the combined Sanford-Intermountain health system are likely, Harrison said the organization is "receptive and eager" to explore possibilities — but only with entities that are already on strong financial footing, likely in the western U.S.

"We think that the vision of affordable, high-quality care that's meant to keep people well is going to be extraordinarily attractive. And we believe that there are going to be hospital systems across the interior west of the U.S. that are going to want to join the team," Harrison said.

Joe Carlson • 612-673-4779