Nearly five months remain until the end of the year when one of Iowa’s largest hospital systems plans to merge with another system based in South Dakota, marking the latest move in an ongoing trend shifting the health care industry across the country.
UnityPoint Health announced in June that officials had signed a letter of intent to explore a merger with Sanford Health of South Dakota. If combined into one, the systems would become one of the 15 largest nonprofit health operations in the country.
State and national experts say this deal highlights the latest trend of the industry moving from small, locally controlled markets to regional and even national system powerhouses.
Anu Singh, a managing director at consulting and research firm Kaufman Hall, said he is seeing an industry “that is in transformation.”
“We have systems that are pursuing much broader regional strategies and much different business and strategic initiatives than they had in the past,” Singh said.
The number of transactions in the health care industry — meaning mergers, acquisitions and joint operating agreements — has been “significantly higher” in the past three or four years than it was over the past few decades, Singh said.
“I think we’ve hit four straight years of 100-plus in number of transactions,” he said. “Our record-keeping as far back as we can go, we can’t find another period of time where that happened.”
Deal includes Cedar Rapids hospital
Des Moines-based UnityPoint Health has 32 hospitals — including UnityPoint Health-St. Luke’s in Cedar Rapids — and 280 clinics in Iowa, Illinois and Wisconsin.
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Sanford Health, out of Sioux Falls, S.D., is one of the largest health systems in the United States with 44 hospitals and more than 200 senior care facilities in 26 states and nine countries.
Together, the new system — which was not given a name in the announcement — would have an operating revenue of more than $11 billion and would employ more than 2,600 physicians and 83,000 staff.
A spokesman for Sanford declined a request for an interview.
UnityPoint officials answered questions sent by email and said the goal of both organizations was “to become a world leader in personalized primary care, bringing the latest clinical research and innovations to patients in communities of all sizes across the Midwest.”
The venture is subject to regulatory review, including from the Federal Trade Commission, making the timeline of the deal fluid. Officials announced in June they hope to complete the deal by the end of the year. A vote also will be required of both hospital boards to finalize the partnership.
“Over the next several months, our organizations will focus on getting to know each other better and laying out the vision of our potential partnership,” the UnityPoint statement read.
The UnityPoint and Sanford merger was one of 19 transactions in the second quarter of 2019, according to an analysis by Kaufman Hall. The first two quarters of 2019 saw 46 announced transactions in total, which so far has been in line with the recent past, according to the analysis. Kaufman Hall stated there were 90 announced transactions in 2018.
A year-end analysis reported the parties involved in these deals continue to grow. The average revenue size of the smaller of the two organizations in a transaction has grown 13.8 percent since 2008.
‘Deeply committed’ to lower patient costs
But what impact the UnityPoint and Sanford merger may have on the cost of patients’ health care is unclear as it’s still too early in the negotiations to project, officials said.
“However, both entities are deeply committed to creating value for our patients and our communities,” according to a UnityPoint statement. “The ability to achieve meaningful improvements in health care costs will be a critical component of the partnership.”
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Experts say that rising health care costs and lower reimbursement from public and commercial insurance companies is driving this trend.
It also is driven in part by the shift in insurance reimbursement toward value-based payments. This push from insurance companies and policy makers is reimbursing health systems for keeping patients healthy for the long term, rather than paying hospitals for each service they provide, said Keith Mueller, a University of Iowa researcher and director of the RUPRI Center for Rural Health Policy Analysis.
In this notion of creating an integrated network, “the broader the geography, the more you get scale and the more you can achieve some of those types of objectives,” Mueller said.
Mueller said he expects community hospitals that remain independent to consider finding affiliate partners, or even buyers.
According to the Iowa Hospital Association, 25 of Iowa’s hospitals remain independent, including Mercy Medical Center in Cedar Rapids.
Almost 40 Iowa hospitals are owned by a health system, such as UnityPoint Health, and dozens more are managed by large systems.
UnityPoint officials indicated they still were finalizing the combined workforce, but said the goal was “to preserve our talented team members while meeting the sustainability needs of a high-performing organization.”
Through this merger, officials said patients will gain access to new treatments in areas such as rare diseases and stem cell therapies, later-stage clinical trials and expanded hospital programs, such as Sanford’s Imagenetics program that can find, among other things, what medications are most effective for an individual.
Merger trend has roots in the 1990s
The trend started in the 1990s when local community hospitals formed loose affiliations with similarly sized hospitals in operational or clinical partnerships, said Kirk Norris, president and chief executive officer of the Iowa Hospital Association.
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Now, transactions have become more formal agreements and can be defined either as a partnership of regional systems or the joining of national systems, Norris said.
The UnityPoint and Sanford deal is an example of a regional system.
Another large health system in Iowa is MercyOne, a joint venture between two systems outside the state — Catholic Health Initiatives of Colorado and Trinity Health of Michigan. To further complicate MercyOne’s structure, Catholic Health Initiatives announced earlier this year it was merging with Dignity Health in California to form a $29 billion system called CommonSpirit Health.
“If you’re a hospital that’s at the ground level in Iowa or one of those states, you’re not only trying to compete in your own space but you’re also trying to respond to the expectations of these amalgamated organizations,” Norris said.
Norris said he is concerned local hospitals’ autonomy is “on its way, if not gone already.”
“Today, what (hospitals) pay people and the benefits they provide is not being decided locally,” he said. “In a lot of circumstances, it’s going to be decided in a corporate office several states away.”
Some local experts remain optimistic that these deals are not detrimental to patient health.
“When I look at their mission statements and their business model and what they’re trying to accomplish, I’m struck by their dedication to making sure that the communities they’re in are getting what those communities need,” Mueller said. “It’s not empire building.”
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