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Hospital Merger Seeks to Create Regional Giant in the West

10/26/2020 | 05:16pm EST

By Melanie Evans

Utah's largest hospital system, Intermountain Healthcare, will expand into the Midwest with a proposed merger to create a regional hospital giant, the latest pairing amid a spate of consolidation in the sector.

Under the deal unveiled Monday, Intermountain, a nonprofit based in Salt Lake City, Utah, and Sanford Health, a nonprofit based in Sioux Falls, S.D., would combine 69 hospitals across Idaho, Iowa, Minnesota, North Dakota, South Dakota and Utah. The merger would also unite the two hospital systems' insurance operations, which now cover about 1.1 million people, and include more than 400 clinics.

The deal comes as hospitals look to expand their networks and gain more influence over where patients get care. Hospitals face more competition from retailers including Walmart Inc. and CVS Health Corp., which have pushed further into health-care delivery. They are also confronting increasingly intense scrutiny from employers seeking to better control costs of employee health benefits.

Some proposed hospital deals have collapsed recently. Advocate Aurora Health and Beaumont Health announced earlier this month they had called off merger talks. Last year, two major Texas systems scrapped deal plans and Sanford's merger talks with UnityPoint Health ended without a deal.

Other proposed deals have succeeded in creating new powerhouse hospital systems, adding to the $1 trillion hospital sector's brisk deal-making pace in recent years. Last year's merger of Dignity Health and Catholic Health Initiatives created CommonSpirit Health, which at the time had 142 hospitals. The prior year, Aurora Health Care and Advocate Health Care formed Advocate Aurora and Bon Secours Health System Inc. merged with Mercy Health.

Hospital-system executives say deals provide scale and other benefits that help to improve quality of care and reduce costs, but dominant hospital systems can also negotiate terms that could stifle competition. Recent studies have found mergers that don't enhance quality, but do raise prices.

"There's been a huge amount of consolidation and we have very little to show for it," said Martin Gaynor, a former director of the Bureau of Economics for the Federal Trade Commission and a health-policy professor at Carnegie Mellon University.

Mergers of hospital rivals that compete in the same market for the same patients are the greatest threat to competition, said health policy and economic experts. Regional consolidation could raise concerns for insurers that contract for national health-care networks on behalf of large employers, said Leemore Dafny, a health economist at Harvard Business School. "I would not give them a free pass."

Intermountain and Sanford chief executives said concerns that higher prices would follow the systems' combination are unfounded. "We're not playing this game to extract better prices from insurers," Intermountain's CEO Marc Harrison said. The combined system's greater geographic reach would expand health-care networks for employers and increase offerings of Sanford's smaller insurance arm, they said.

The companies are planning on more deal making as they seek continued growth, Dr. Harrison said. "We've staked out an eastern and western center of gravity" for an expanding hospital system in the West, he said.

Dr. Harrison will be named CEO of the combined hospital system. Sanford CEO Kelby Krabbenhoft will be named president emeritus. Combined 2019 revenue for the two systems totaled about $15 billion, according to financial statements.

Write to Melanie Evans at Melanie.Evans@wsj.com

Corrections & Amplifications

This item was corrected on October 27, 2020 to reflect that combined 2019 revenue for Intermountain Healthcare and Sanford Health totaled about $15 billion, according to financial statements. The original version incorrectly said it was about $13 billion in the final paragraph.

(END) Dow Jones Newswires

10-26-20 1816ET

Stocks mentioned in the article
ChangeLast1st jan.
CVS HEALTH CORPORATION 3.09% 69.63 Delayed Quote.-6.27%
SANFORD LIMITED -0.99% 5 End-of-day quote.-37.11%
WALMART INC. -1.39% 150.52 Delayed Quote.26.66%
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