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Published July 17, 2009, 12:00 AM

‘Merger of equals’ goes ahead

Health system to incorporate in ND, create alternative insurance offering
MeritCare and Sanford Health announced Thursday their intention to merge and disclosed that the joint organization would be incorporated in North Dakota.

By: Patrick Springer, INFORUM

© Copyright 2009, The Forum

MeritCare and Sanford Health announced Thursday their intention to merge and disclosed that the joint organization would be incorporated in North Dakota.

If approved, the union of Sanford and MeritCare would create a vast regional health system serving 2 million people in five states, with corporate offices in Sioux Falls, S.D., where Sanford is based, and Fargo.

Top executives of both organizations and leaders of MeritCare’s board sat down with The Forum on Thursday to discuss the deal. All stressed it would be a “merger of equals,” and said the vision is one of enhancing medical services and revenues – not slashing costs and staff.

As part of this, Sanford Health hopes to extend its health insurance coverage to North Dakota, providing a new alternative for consumers, officials said.

Dr. Roger Gilbertson, MeritCare’s president and chief executive officer, said the letter of intent to merge, approved Thursday by the boards of both organizations, is the first step toward a union expected to be completed by the end of the year.

“But it is a very significant step,” added Ellen Earle-Chaffee, chairwoman of the MeritCare board of trustees. “We would not be proceeding unless we thought it was the right thing to do. We feel very strongly about that.”

Kelby Krabbenhoft, chief executive officer of Sanford, would be the top executive of the merged system and would divide his time between Sioux Falls and Fargo.

For patients, the merger would mean that care now provided in Fargo-Moorhead will continue, although joining with Sanford Health ultimately will result in more sophisticated health services which have yet to be defined.

“The assumption is we’re going to get bigger, we’re going to get better, we’re going to improve,” Krabbenhoft said.

Although the two organizations are large – each has revenues exceeding $1 billion and more than 1 million clinical visits a year – both faced increasing challenges in providing specialized health services to areas lacking population density, Gilbertson said.

“Both of these organizations have the same dilemma,” he said, explaining the forces bringing them together. Combined they would generate a patient base that can support highly sophisticated services.

“There is no question that the level of sophistication will increase at both facilities,” Gilbertson said, adding that a medical review would be needed to determine those services.

The decision to incorporate in North Dakotashould help reassure those who are apprehensive that MeritCare and its service area would be subordinate to Sanford, Krabbenhoft said.

Community and business leaders have expressed worries that Fargo would see significant layoffs as a result of a merger, but executives of both organizations stressed that the strategy is one of expanding services and revenues.

That assessment was bolstered in a review by Deloitte Consulting, a group hired to study the merger, said Lisa Carlson, MeritCare’s chief financial officer.

Deloitte also concluded the merger would create growth opportunities that would “facilitate the development of regional centers of excellence.”

Joining forces also would result in a stronger financial position, allowing the joint organization to benefit from greater economies of scale, efficiencies and better access to capital.

Also, a combined Sanford MeritCare would help prevent “out-migration” of patients to referral centers in other markets, such as Minneapolis or Rochester, Minn., Deloitte concluded.

By coming together, training opportunities for physicians, nurses and other health professionals will broaden, possibly including fellowships for physicians, Gilbertson said.

Sanford MeritCare would be governed by a 15-member “super board,” to be comprised of seven members from MeritCare, seven from Sanford, and the joint health system’s top executive, Krabbenhoft.

Gilbertson, slated to retire at the end of the year, would stay on as a merger consultant. The search for his replacement has been suspended, Chaffee said.

Two presidents would serve under Krabbenhoft, one to serve as a manager based in Sioux Falls, the other in Fargo.

Krabbenhoft, who said there also were concerns in South Dakota that there would be a “vacuum to the north,” said people worried about a Sanford bias should judge him by his actions as the merger evolves.

“My mind is all about balance right now,” he said.

Krabbenhoft said he will strive to avoid layoffs, which has been a major concern in his administration at Sanford. Gilbertson agreed few layoffs would result.

“This is a revenue strategy,” Gilbertson said. “The growth far exceeds any job loss.” Although there could be a few layoffs, he added, “The net effect is going to be a net effect for jobs.”

Lauris Molbert, treasurer of the MeritCare board, and a leader in the merger talks, said the service areas of the two health systems do not overlap.

That means there are no redundancies in providing medical services – and no antitrust obstacles that could stand in the way of a merger, Molbert said.

Now that the letter of intent has been signed, the two organizations will continue the job of reviewing the pros and cons of a merger, a process called “due diligence.”

Newly formed Citizens for MeritCare, a group of influential community leaders, including former Fargo Mayor Bruce Furness and Jane Sinner, former North Dakota first lady, have urged MeritCare to be more forthcoming to the public in making the case for a merger.

Now that they have signed the letter of intent, leaders of both organizations said, the two health systems will be able to divulge details of the merged organization now that the letter of intent has been signed.

That will start with news conferences in Fargo and Sioux Falls today.


Readers can reach Forum reporter Patrick Springer at (701) 241-5522

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