Health

Culture clash could be to blame for UnityPoint, Sanford Health merger halt

UnityPoint Health called off a proposed merger with Sanford Health earlier this month. St. Luke’s Hospital in Cedar Rapids is part of the UnityPoint system. (The Gazette)
UnityPoint Health called off a proposed merger with Sanford Health earlier this month. St. Luke’s Hospital in Cedar Rapids is part of the UnityPoint system. (The Gazette)

A number of factors could have contributed to UnityPoint Health’s decision not to go forward with a formal partnership with a South Dakota-based system, even after months of discussions, experts say. But it may have come down to clashing cultures.

Des Moines-based UnityPoint Health, one of the largest health systems in the state, called off a partnership with Sanford Health, issuing a statement earlier this month that “we believe we can best meet the needs of our patients and our communities by maintaining our existing corporate structure at this time.”

The combined system would have created one of the largest nonprofit health systems in the country, with more than $11 billion in operating revenue, 2,600 physicians and 83,000 staffers. St. Luke’s Hospital in Cedar Rapids is part of that system.

Sanford officials said they were disappointed UnityPoint Health ended formal negotiations.

“We were excited at the opportunity our combination would have provided to create a new health system of national prominence,” said Sanford Health President and Chief Executive Officer Kelby Krabbenhoft in a statement. “The executive management teams and physicians worked diligently for 18 months to provide a merger recommendation to the boards.

“We are disappointed that the UnityPoint Health board failed to embrace the vision.”

UnityPoint Health officials declined to comment further on the announcement, but a spokeswoman shared an internal memo with The Gazette that was sent by President and CEO Kevin Vermeer to staff on Nov. 12.

“As the saying goes, timing matters,” Vermeer wrote in the memo. “For us to grow as a system, we look for three things: strategic alignment, a strong cultural fit and the right timing.

“In this case, we deeply respect Sanford Health, but this specific partnership opportunity did not work out. Still, we’ll look to how we might be able to partner together in the future across shared goals for the patients and communities we each serve.”

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Vermeer’s memo went on to say UnityPoint has “created a culture built on shared values and people-first brand promise.”

When it comes to system mergers across many industries, business and health care experts say shared mission and vision are key to success.

Question of culture

Hospital systems have their own set of ideas around the practice of medicine, said Barak Richman, a professor at the Duke University of Law in North Carolina who is an expert on hospital consolidations.

“Every place has its own flavor, and when hospitals try to integrate you are mixing flavors,” he said. “You get all sorts of concerns over how you control the practice of medicine.”

Richman added that, “any new power structure institute changes the way medicine is practiced, there’s going to be natural pushback. That’s why it’s difficult to meaningfully integrate health system.”

Incompatible cultures may be the most common reason for mergers to fall through in many industries, said Arturs Kalnins, associate professor of strategy in the Tippie College of Business at the University of Iowa.

“You can see the potential for conflict,” Kalnins said. “One frequent outcome is that key people end up leaving because they’re unhappy with direction of that company, which leaves a vacuum of institutional knowledge.”

The vision of the new system has to be something both parties can buy into, said Keith Mueller, director of the RUPRI Center for Rural Health Policy Analysis and a University of Iowa researcher.

“Any time you’re merging any two medium to large organizations with long histories, you would hope those issues (regarding vision) would come up,” Mueller said. “Those would determine success of new merged entity.”

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If culture is the reason for the split between UnityPoint and Sanford systems, Kalnins said he believes not going through with a deal was a good choice.

“UnityPoint Health and Sanford Health seem like they’re doing the right thing,” Kalnins said. “Culture is really difficult.”

An ongoing trend

In statements following the announcement, UnityPoint Health officials said they will “continue to evaluate opportunities to work with other high-quality and like-minded partners.”

However, Vermeer, UnityPoint’s CEO, stated in the internal memo that the Iowa-based system is “strong with a partner and without one.”

“We are committed to our vision of being the best in the Midwest, known for redesigning the health care experience,” Vermeer wrote. “And even though health care continues to change, it is abundantly clear that our organization is stronger today than ever before, with a bright future.

“We will move forward with courage, confidence and lessons learned.”

The potential partnership was among the latest move in an ongoing trend within the country’s health care systems in which systems are shifting from small, locally controlled markets to regional powerhouses.

One hundred fifteen transactions were announced in 2017, the highest number in recent history, according to research firm Kaufman Hall. 10 of those transactions involved parties with net revenues of $1 billion or more.

In 2018, there were 90 total announced deals between systems nationwide, Kaufman Hall reported.

UnityPoint Health and Sanford Health systems signed a letter of intent in June to officially begin putting together the deal. The proposed agreement would be subject to regulatory reviews by the Federal Trade Commission to determine whether it raises any antitrust concerns.

Patient impact

By merging with other hospitals, experts say organizations are hoping to become better equipped to deal with the rising cost of health care and changing national policy.

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However, Richman noted there’s evidence that shows these large system deals are not always best for patient care. Merging systems creates less competition, which ultimately leads to higher costs for patients, he said.

“It’s bad for patients when there’s no hospital competition,” Richman said.

Some experts believe mergers and consolidations won’t have an initial impact on the patients themselves.

“I don’t think would change what patients experience, at least in the short term,” said Mueller of the RUPRI Center. ”I don’t feel as a patient there’s an immediate impact on me with these system level conversations.”

Comments: (319) 368-8536; michaela.ramm@thegazette.com

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