Sanford Health and UnityPoint Health on Friday announced they've signed a letter of intent to merge into an $11 billion integrated health system to form what the Wall Street Journal calls a "regional giant" in the Midwest.

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The announcement comes amid a raft of consolidation in the provider space in recent years.

Two big players

Sanford, based in Sioux Falls, has 44 hospitals, 482 clinics, and more than 200 senior care centers in 26 states and nine countries. It's the dominant health care system in its largest markets in North Dakota and South Dakota, according to the Journal. Last year, it reported an operating income of $172.9 million on operating revenue of $4.82 billion, according to Modern Healthcare.

UnityPoint, based in Des Moines, has 32 hospitals and 280 clinics in Iowa, Wisconsin, and Illinois. It's the biggest or second-biggest system in three major markets in Iowa and Illinois, according to the Journal. Last year, it reported operating income of $40.8 million on revenue of $4.41 billion, according to Modern Healthcare.

What the merged system would look like

The merged system would encompass 76 hospitals and outpatient and long-term care centers across 26 states, the executives of the two systems said. It would employ more than 83,000 people and 2,600 physicians, according to Modern Healthcare.

According to a release, the systems "would continue to operate their respective fully-integrated medical groups and maintain longstanding relationships with independent physicians, hospitals and other health care partners."

The systems have not released a name for the merged entity. Sanford CEO Kelby Krabbenhoft is expected to serve as CEO of the merged system, while UnityPoint CEO Kevin Vermeer would be named senior EVP, the Journal reports.

The deal, which would require regulatory approval, is expected to close by the end of this year. If the deal is approved, the combined entity would become one of the 15 largest nonprofit health systems by revenue, according to Modern Healthcare.

Reactions and implications

"The challenges inherent in integrating two organizations of this size are numerous," said David Willis, VP of health system strategy at Advisory Board. "Recent studies underscore how difficult it is in practice for M&A to deliver the kind of results that are often promised on paper. That said, these are two strong leadership teams, and it will be a fascinating case study to watch."

Willis added, "My initial reaction is that the degree of success will depend on the ability of the new organization to achieve three essential competencies of systemness. First, can they aggressively integrate back office functions? Second, can the medical staffs of the two organizations align around a bold clinical standardization platform? And finally, can the new organization rationalize acute care assets while still providing cost-effective care to rural communities?"

Related: How you can achieve 'systemness'

Executives for the two systems, for their part, said combining their operations and the larger geographic footprint should help secure business from insurers, employers, and governments.

Krabbenhoft noted that access to providers and services is considered important under these contracts. "Where are your clinics? Where are your hospitals? Where are your doctors? It's the first thing they ask," Krabbenhoft said.

Vermeer said the goal of the deal is to increase the systems' efficiency, saying that each system will benefit from the strengths of the other. For instance, Stanford has research operations that Unity does not currently have, while Unity has schools to train health care professionals, according to the Journal.

"First and foremost, our focus is on people," Vermeer said. "Working together, we will find new ways to broaden access to care—beyond the traditional settings—and take greater responsibility for the health of the populations we serve" (Leys, Des Moines Register, 6/27; Evans, Wall Street Journal, 6/28; Kacik, Modern Healthcare, 6/28).

Learn how mega-mergers could impact your organization

Health care mergers and acquisitions are hardly new, but many recent transactions involve vertical integration: new-in-kind combinations of major players resulting in unprecedented scale and scope.

Use this research report to plan for integrators' possible moves, forecast potential effects on your organization, and create a plan to defend against or capitalize on the changes.

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