Marshfield, Gundersen merger would alter rural care
MARSHFIELD - A merger of Marshfield Clinic Health System and Gundersen Health System would create a medical giant whose presence spans about two-thirds of Wisconsin's counties.
The merged health system would employ more than 18,000 people, or roughly the population of Marshfield. It would have revenue of more than $3.7 billion a year. And it would be the second largest health system in the state behind Advocate Aurora Health.
A merger would make it clear that the consolidation in Wisconsin's medical industry shows no signs of slowing as systems bet size will give them the financial strength, stability and scale needed to survive in the coming years.
But integrating Gundersen Health and Marshfield Clinic would bring challenges. And whether, as the two systems contend, it would improve the quality of care and reduce costs remains a question.
Combined, the two health systems would have more resources to experiment with innovations, such as new ways of delivering care and using analytics and other advances in information technology to provide better care for patients.
Yet studies indicate that mergers overall lead to higher costs, as health systems gain more leverage in negotiating contracts with health insurers — although this comes into play primarily when health systems operate in the same market.
Marshfield Clinic and Gundersen Health, in contrast, have hospitals and clinics in largely different parts of the state.
The talks between the two health systems, announced earlier this month, came after years of Marshfield Clinic maneuvers to own and operate hospitals in central and northern Wisconsin — a strategy partially designed to exert more control over the quality and cost of care where its physicians practice.
Marshfield cited Gundersen Health’s expertise in running hospitals as one of the potential benefits of the merger.
The negotiations with Gundersen emerged after Marshfield Clinic reported a total of $84 million in operating losses for its fiscal year ended Sept. 30 and the first quarter of its current fiscal year.
It reported an even larger net loss — which includes investment gains and losses on its reserves — of $66.6 million, although some of those losses would have been offset by investment gains from the stock market’s recovery earlier this year.
Marshfield Clinic still has a solid bond rating and is not in financial
trouble — it had about $907 million in reserves as of Sept. 30.
The health system attributed the operating losses largely to the start-up costs of its opening a hospital in Eau Claire, to implementing a new system for electronic health records and billing, and to problems with a new scheduling system.
“Marshfield is going through a lot of transition right now,” said Suzie Desai, director at S&P Global, which rates the credit worthiness of health systems.
The recent losses, she said, appear to be growing pains.
“Any time you open a new hospital, even in the best of circumstances, there’s going to be a little bit of noise,” Desai said.
Marshfield Clinic acknowledged it is “in a period of significant transformation.”
“We knew this transformation would require significant investments on the front end,” the statement said. “The resulting pressure on earnings is no surprise. We expected these challenges and incorporated them into our long-range financial plans.”
Without question, Marshfield Clinic — founded by three physicians in 1916 and now employing more than 1,300 doctors and other clinicians — sees the need to get bigger, and get bigger fast.
Marshfield Clinic first forced Ascension Wisconsin to sell Saint Joseph’s Hospital by threatening to build its own hospital in Marshfield. Ascension Wisconsin had little choice but to sell given that Marshfield Clinic’s physicians staffed the hospital. Marshfield Clinic bought Saint Joseph's for $324.4 million in 2017 and now operates it as the Marshfield Medical Center.
Since then, Marshfield Clinic has:
Built its $175 million hospital in Eau Claire, the third in a city of about 70,000 people, that opened last year.
Added Beaver Dam Community Hospitals, a small health system that operates in the red, to its portfolio last year.
Added Memorial Medical Center in Neillsville and Rusk County Memorial Hospital in Ladysmith to its system.
Now comes the possible merger with Gundersen Health, a health system based in La Crosse that had $1.3 billion in revenue last year. The merger, however, is not certain. “This is not a decided deal,” said Scott Rathgaber, CEO of Gundersen Health. “We are in the due diligence phase to make sure this is the right thing for both of our systems and our patients.”
The two health systems announced the talks, he said, to get reactions from the communities in which they operate and from their medical staffs and employees.
“You don’t want the decision to be made by 15 or 20 people,” Rathgaber said.
How combining Marshfield and Gundersen could benefit rural Wisconsin
The two systems face similar challenges: Both operate in predominantly rural areas, where populations overall are declining and aging.
That means a larger percentage of their patients are covered by Medicare, which pays lower prices than commercial health plans.
And the federal agency that oversees Medicare has sent clear signals it plans to move toward new ways of paying hospitals and physicians that will put added pressure on them to become more efficient.
Marshfield Clinic and Gundersen Health have also been a godsend for some small rural communities where they have so-called critical-access hospitals with fewer than 25 beds. Gundersen operates five such hospitals while Marshfield operates two and shares ownership of a third with Ascension Wisconsin.
Those hospitals benefit from the health systems' financial resources and economies of scale in areas such as purchasing, billing and computer systems. The hospitals often can offer more services, as well.
Many independent rural hospitals throughout the country, in contrast, are struggling. Sixty-four of those type of hospitals shut down from 2013 to 2017, according to a federal agency report in August.
“We’ve been lucky,” said Tim Size, executive director of the Rural Wisconsin Health Cooperative. “We haven’t seen the rapid closures that we’ve seen around the country.”
The merger of two systems led by physicians could bring advantages.
Combining their operations is likely to produce savings from consolidating such departments as legal, marketing and informational technology.
A merged health system also would have more resources to invest in new initiatives, said Anu Singh, managing director and practice co-leader for mergers, acquisitions and partnerships at Kaufman Hall, a consulting firm.
A merger would also bring together the expertise of each health system.
For example, Marshfield Clinic has an innovative program to provide hospital care in a patient’s home. Gundersen Health has an antibiotic stewardship program to ensure patients receive the most cost-effective drug and to prevent the inappropriate use of antibiotics.
Gundersen Health also has drawn national and international attention for advanced planning for end-of-life care.
A merger may mean more expensive health care
None of this, though, means that the merger would result in lower costs for patients. Prices often rise when close competitors merge, said Merton Finkler, a retired professor of health economics at Lawrence University in Appleton.
A large body of academic research indicates consolidated health systems can raise prices more easily because they have more leverage in negotiation with health insurers. That's because it's harder for a health plan to not include a larger health system in its network. The result: higher premiums for consumers and employers.
Rural areas in particular are vulnerable because there are often few, if any, alternatives for health care for patients.
"If there’s only a sole provider, where can someone go?" Finkler said.
Rathgaber, the CEO of Gundersen Health, acknowledged that health system mergers generally have not led to lower prices.
But he noted that Gundersen Health and Marshfield Clinic each own an insurance company. If a merged system lowers costs, their health plans will become more competitive and possibly offer lower premiums to consumers.
“That is where we have a difference,” Rathgaber said.
What friction will merger cause?
Whether bigger is better is a question.
“Size does help you,” Rathgaber said. “It is not the solution in itself.”
For one thing, pushing change through a larger and more complex organization is more difficult, and a merger of the two systems is not without risks.
Marshfield Clinic and Gundersen Health have different systems for electronic health records, and moving to one system would take years and cost more than $100 million.
Mergers come with disruption, uncertainty and unexpected problems.
Who gets what jobs? What is the make-up of the board? Who is CEO? And how do you integrate two large organizations with different cultures?
“There will always be some element of friction in bringing two like organizations together," Singh of Kaufman Hall said.