Midwest hospital systems drop merger plans

More than a year after beginning a path toward a merger, Essentia Health and Marshfield Clinic Health System have decided not to come together after all.

The leaders of the two hospital systems said Friday that they will go their separate ways. If they had joined forces, they would have created a system with 25 hospitals.

Essentia and Marshfield announced their initial merger discussions in October 2022. In July, the two systems announced they had reached an agreement to come together.

But on Friday, Essentia and Marshfield said the merger isn’t going to happen.

In a joint statement, the two systems said, “We will continue to seek opportunities for collaboration as two mission-driven, integrated health systems dedicated to sustainable rural health care. Our organizations have great respect for one another, and we each remain committed to strengthening the health of our communities as we deliver high-quality, compassionate patient care.”

• Read more: Big deals: Looking at the major hospital mergers of 2023

Essentia, based in Minnesota, operates 14 hospitals. Marshfield Clinic, based in Wisconsin, operates 11 hospitals.

Essentia Health CEO David Herman said in the news release that he appreciated the relationships that his system developed with Marshfield Clinic.

“Moving ahead, Essentia continues to focus on building innovative partnerships and transforming care for our communities,” Herman said in the statement. “As a strong, growing organization, we are guided by our mission to make a healthy difference for those we are privileged to serve."

Brian Hoerneman, interim CEO of Marshfield Clinic, said the merger discussions took place because both systems were “high-performing, well-respected, community-focused organizations.”

“As we now move our separate ways, Marshfield Clinic looks forward to advancing our 100-year legacy of providing compassionate and accessible care to the communities we serve,” Hoerneman said in a statement. “Our commitment to continually enhance the level of care we provide remains firmly in place as we look to the future.”

Tony Matt, a spokesman for Essentia, said in a statement to WSAW-TV that financial considerations were a factor. “To be clear, Essentia’s finances are strong, and it is imperative we maintain that stability so we can continue investing in and enhancing care for our patients,” Matt said in the statement.

Mergers in Minnesota are gaining more scrutiny, due to a new law passed in 2023 that gives the state’s attorney general the authority to examine hospital mergers to ensure they don’t reduce competition or healthcare services.

Minnesota Attorney General Keith Ellison said in October that he would review the planned merger of Essentia and Marshfield Clinic. He also said he would review the planned merger of St. Luke’s in Duluth, Minn. with Aspirus Health, a Wisconsin-based system.

Essentia said Friday that regulatory issues didn't lead to the decision to drop the merger plans, MPR News reported.

When Essentia and Marshfield Clinic announced their agreement in July, Herman touted the merits of two organizations that were both led by physicians.

“Our complementary capabilities will allow us to learn and share with one another to better achieve our collective mission,” Herman said in July.

Essentia and Marshfield Clinic are abandoning their plans even as other major hospital deals have taken place in the midwest.

On Jan. 1, two Missouri health systems, BJC HealthCare and Saint Luke’s Health System, completed their merger. The combined organization is now moving forward as BJC Health System. The integrated academic health system boasts $10 billion in revenue and operates 24 hospitals and more than 250 clinics and healthcare locations.

In December, Froedtert Health and ThedaCare, both based in Wisconsin, said that they had completed their work on a merger and were moving forward as an integrated system in the new year. The merger creates an organization with 18 hospitals and combined revenue of more than $4 billion.

Analysts expect to see more hospital and healthcare mergers in the near future, as systems eye strategic opportunities and struggling hospitals seek partners to stay afloat. KPMG said in a new report Friday that investors expect more mergers in the healthcare and life sciences industries.

However, analysts also note that federal regulators have been more aggressive in reviewing hospital mergers and acquisitions under President Biden’s administration, and regulatory scrutiny could delay some deals.