Sanford Health is attempting to merge with Wisconsin-based Marshfield Clinic Health Systems. But experts in the field of health care business say this merger, like Sanford’s previous attempts, faces challenges.
The fifth attempted merger for Sanford Health in recent memory marks another attempt to expand the network's borders. Only one of those attempts led to consolidation – the partnership between Sanford and the Good Samaritan Society in 2019.
Larry Zielinski is a professor of the business and economics of health care at the University at Buffalo. He said expect this merger to face questions.
“Hospital mergers have to be approved by the state regulator over this type of business activity, then it also has to be approved by the Federal Trade Commission," Zielinski said. "A merger of this size is going to get some scrutiny from the FTC – especially the current FTC. We have a very aggressive, young FTC chairman, Lena Khan. If the Democrats are reelected in November, she’ll likely stay in place.”
Zielinski said there is underlying business workings at play in mergers like these.
"Insurance companies are getting huge - larger and larger and larger," Zielinski said. "Hospital systems are reacting to that by also going on the mega-merger trends. It increases their leverage in negotiations. When large hospitals get larger, it increases their leverage and it also gives them the ability to increase prices in their markets."
He said the merger process has gotten harder for health networks.
“It used to be up until very recently that cross-market mergers like the one you’re talking about – Sanford and Marshfield – would get relatively little scrutiny and they would be approved," Zielinski said. "As the data has been collected, it shows what I’ve indicated, which is prices go up, you’re starting to see more scrutiny from the FTC.”
But that doesn’t mean it’s impossible. Mark Pauly is a professor of health care management at the University of Pennsylvania’s Wharton School of Business. He said the jury is still out for this case.
“These two health systems don’t overlap, so it’s not like there are two hospitals in town owned by each one," Pauly said. "That’s what economists worry about – that if there’s a reduction in competition it could be bad for consumers. In this case so far, the evidence is pretty strong that it really doesn’t make much of a difference.”
Further, he said he doesn't expect major overhauls to either network if the plan is approved.
"It's not going to be lessened if one of these hospitals is now affiliated with a hospital in Upper Peninsula Michigan - that's not going to make any difference," Pauly said. "There are always promises, usually in the form of platitudes from CEOs, to suggest there will be efficiencies and unification will provide large benefits, but the evidence so far that they make much of a difference one way or another is pretty slim. If I was a potential patient in either Wisconsin, Michigan, or South Dakota and Iowa, I wouldn't be too excited about this one way or another."
Pauly said the real winner of these mergers are graphic designers looking to make a new logo for a hospital network.
"You could call it empire building, or you could call it excess managerial capacity - that management is so good they're looking for more worlds to conquer," Pauly said. "That seems to be more or less, by default, the motivation for these mergers."
The most recent attempted Sanford consolidation, with Fairview Health, fell through after facing steep opposition from the Minnesota Attorney General’s office and state legislature.