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Our Take: Intermountain Healthcare, Sanford Health to merge

Nov 02, 2020
Salt Lake City, Utah-based Intermountain Healthcare and Sioux Falls, S.D.-based Sanford Health announced that they have signed a letter of intent to develop a strategic partnership, with the intent to merge the two organizations in 2021. The boards of both organizations have approved the start of the due diligence process.

“Intermountain and Sanford have a shared vision of the future of health care and have the aligned values needed to better serve more communities across the nation,” said Dr. Marc Harrison, president and CEO of Intermountain Healthcare, in a press release. “This merger enables our organizations to move more quickly to further implement value-based strategies and realize economies of scale.”

“For more than two decades, we’ve been focused on good growth, with the goal of driving innovation and bringing more affordable and accessible health care to the communities we serve,” said Kelby Krabbenhoft, president and CEO of Sanford Health. “By coming together with Intermountain Healthcare, we will improve the health and well-being of the communities we serve and strengthen our impact in health care delivery and value.”

Dr. Harrison will be president and CEO of the combined organization. Krabbenhoft will serve as president emeritus.

The organizations will continue to operate under their current names. The new entity will be headquartered in Salt Lake City, with corporate offices in Sioux Falls.

Our Take: We were wondering when the pandemic-driven financial disaster that has fallen on many health systems would lead to a wave of mergers and acquisitions. Is this the first of many to come?
Apparently not.

In a teleconference with reporters, Krabbenhoft was asked what was driving the merger.

“It’s the insurance piece that has challenged Sanford in recent times. We’ve had an insurance company for 25 years and we do a good job with it in this region. But we’re stuck,” Krabbenhoft said. “To grow outside this region with our insurance in a mobile society has become a daunting challenge for Sanford Health. Meeting an organization like Intermountain Health with their reach, with their reputation and their insurance company being four or five times the size of our insurance company, really was the missing ingredient. … It really solves a problem for us.”

He added: “It’s really two great health care organizations that don’t have any crisis, no scandal, no problem, no financial issues coming together and saying ‘What can we do?’”

He’s right. In the first quarter, Intermountain reported revenue of $2.33 billion, an increase of 12% compared with the same period in 2019. (To be fair, most of that gain was from the health system’s insurance services division; patient service revenue declined year-over-year.) Operating income declined during the period mainly because of investment losses.

Sanford’s total revenue for the first six months was $3.14 billion, with $98.9 million in income from operations. Like Intermountain, Sanford has posted consistently positive financials for years.
This merger feels more like two complementary organizations with similar values coming together, rather that two mega systems combining for efficiencies and scale (think CommonSpirit). Both are faith-based, nonprofit organizations. Both have a substantial insurance division, which is helping them weather the current financial storm. Both have substantial home health units and a strong rural health network, and both are broadly vertically integrated.

The commonalities don’t end there. Both systems are highly technologically advanced, although Intermountain runs on Cerner and Sanford is an Epic system. Both have strong virtual health programs.

On our Darwin Value Index, Sanford scores a 5.5 (Proficient), while Intermountain is rated at 6.8 (Distinguished). Of the nearly 200 integrated health systems we track, they are on the higher end of the spectrum.

Combined, the system would employ 89,000 people and would operate 70 hospitals and 435 clinics in Idaho, Iowa, Minnesota, Montana, North Dakota, South Dakota, and Utah. It would offer senior care and other services in 24 states. Its payer arm would insure 1.1 million people.

So, what’s our take? Smart move. We prefer this kind of merger to one that’s driven to maximize efficiencies and scale. Just look at the recent failed merger talks between Advocate Aurora Health and Beaumont Health, where doctors and nurses rebelled against the planned merger.

How many years will it take for CommonSpirit to integrate all of its disparate units? Providence still hasn’t fully integrated after its merger in 2016.

Culture matters. And these organizations have enough in common in both structure and values to combine successfully.

As long as the deal passes regulatory muster — which is not guaranteed, given their enhanced market power — this one’s a winner.

What else you need to know
Clinical trials of investigational COVID-19 treatments are providing mixed results. Regeneron Pharmaceuticals reported Wednesday that its COVID-19 cocktail therapy, which combines two antibody drugs, met all of the first nine endpoints in an ongoing Phase II/III trial of nonhospitalized patients with mild to moderate COVID-19, including a significant reduction in viral load and patient medical visits. But on Friday, the company said an independent data monitoring committee for a separate trial of the same therapy recommended that enrollment of certain hospitalized patients — those requiring high-flow oxygen or mechanical ventilation — be halted because of a potential safety signal and an unfavorable risk/benefit profile. The recommendation did not include halting enrollment of hospitalized patients requiring no oxygen or low-flow oxygen.

Meanwhile, after finding that Eli Lilly’s bamlanivimab was unlikely to help patients hospitalized with COVID-19, the National Institute of Allergy and Infectious Diseases ended a trial of the antibody drug early, The Associated Press reported last Monday. However, other trials of the potential COVID-19 treatment in patients with mild to moderate cases will continue, and Lilly announced on Wednesday that it had signed an agreement to supply the federal government with 300,000 vials of the drug in exchange for $375 million — if the FDA grants bamlanivimab emergency use authorization.

Separately, AstraZeneca and Johnson & Johnson received the green light from the FDA on Oct. 23 to resume trials of their investigational COVID-19 vaccines in the U.S. AstraZeneca’s trials were halted globally on Sept. 9 but resumed in the U.K. and other countries about a week later. J&J’s trial was halted on Oct. 12.

And in related news, CMS released an interim rule on Wednesday establishing that any vaccine receiving FDA authorization, whether through emergency use authorization or under a Biologics License Application, would be covered under Medicare at no cost to beneficiaries. CMS noted that private insurers and Medicaid programs would be responsible for covering the vaccine at no charge to beneficiaries, and that providers would be reimbursed through the Provider Relief Fund for administering the vaccine to uninsured individuals.

Mayo Clinic and Google Health are partnering on an initiative that will focus on using artificial intelligence to improve radiation therapy planning for patients with cancer. In the first phase of the project, teams from the two organizations will create an algorithm to automate contouring of healthy tissue and organs from tumors. The goal is to “improve [the] quality of radiation plans and patient outcomes while reducing treatment planning times and improving the efficiency of radiotherapy practice,” Mayo Clinic said in a news release. “Radiation oncologists today painstakingly draw lines around sensitive organs like eyes, salivary glands, and the spinal cord to make sure radiation beams avoid these areas,” Google Health’s informatics lead, Cian Hughes, explained. “We see huge potential in using AI to augment parts of the contouring workflow,” he added.
Wayne Smith will step down as CEO of Community Health Systems (CHS), effective Jan. 1, 2021, and will become executive chairman of the company’s board of directors. Smith joined CHS as president in January 1997 and has been CEO of the company since April 1997. He was elected chairman of the board in 2001. Tim Hingtgen, who has been with CHS since 2008 and currently serves as president and chief operating officer, has been named as Smith’s successor for the CEO position, the company said in a press statement.

In separate news, Smith said during an earnings call last Wednesday that the company expects to complete the remainder of its pending divestitures by the end of this year, Fierce Healthcare reported.

Blue Cross Blue Shield of Illinois (BCBSIL) will provide about $100 million in funding to hospitals that participate in a new three-year value-based program called the Health Equity Hospital Quality Incentive Pilot Program. In a news release, the insurer said the program’s top priority is to support hospitals that serve the highest concentrations of BCBSIL members “who are often most at risk of contracting COVID-19.” The longer-term objective is to reduce racial and ethnic disparities in care.

Teladoc Health completed its $18.5 billion acquisition of Livongo, the virtual care company announced on Friday. The transaction was completed in slightly less than three months. Under the terms of the agreement, Livongo shareholders will receive 0.592 shares of Teladoc Health plus $11.33 in cash for each share of Livongo. The combined entity anticipates revenue of $1.3 billion for 2020.

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