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Patrick Springer, Published July 18 2009

Fargo would land headquarters in MeritCare-Sanford merger

The top executive of the proposed Sanford-MeritCare Health System dangled some dazzling possibilities Friday as he described the benefits of a merger between two large networks.

Downtown Fargo would host the corporate headquarters for Sanford-MeritCare, which the organizations hope can be approved this fall, with the merger taking effect Jan. 1, 2010.

Kelby Krabbenhoft, chief executive of Sanford, based in Sioux Falls, S.D., said MeritCare will benefit from a $400 million gift by philanthropist Dennis Sanford, a “dowry” his organization would bring to the corporate marriage.

MeritCare’s research programs would get a significant boost from Sanford’s research initiatives, he said, led by its commitment to seek a cure for childhood diabetes.

“That’s part of the dowry or inheritance that comes forward to MeritCare,” he said.

In fact, Krabbenhoft added, he had phone messages from a couple of biotechnology firms Friday morning inquiring about the implications of a Sanford-MeritCare merger after news broke Thursday that the boards of both health systems had signed a letter of intent to merge.

Dr. Roger Gilbertson, MeritCare’s chief executive, said enhanced medical research along the Interstate 29 corridor might enable partnerships with vaccine and medical device manufacturers.

“It creates spinoff implications that are really huge,” Krabbenhoft added.

Other possibilities in Fargo someday could include a new freestanding children’s hospital – Sanford recently opened a children’s hospital in Sioux Falls – as well as a renovated and expanded cancer center.

Similarly, Krabbenhoft embraced MeritCare’s long-term plans for a significant health center on a 109-acre parcel of land MeritCare owns at Agassiz Crossing, directly south of Interstate 94 between 45th and 57th streets south.

Later, he also spoke of the possibility of expanding and renovating the MeritCare clinic in Moorhead.

Gilbertson, Krabbenhoft and others spoke in a news conference that lasted more than an hour, laying out their vision for a merger that would serve a population base of 2 million people in five states, a service area of up to 100,000 square miles.

The two CEOs repeatedly sought to reassure MeritCare employees and the general public that consolidation would not translate into net layoffs or a decline in health services.

Ultimately, more jobs and enhanced medical services would come to both Fargo and Sioux Falls, they said.

In many ways, Krabbenhoft said, the two organizations have a similar culture, including their early ties to Lutheran health care.

“We both share a huge reputation for quality and excellence,” he said, with “an overwhelming commonality” in culture and values that should help mesh the two.

At several points, Krabbenhoft complimented MeritCare on its leadership in providing excellent care for the region, and Gilbertson, who plans to retire at the end of the year, for his leading role in integrating doctors and hospitals in one organization.

“We’ve always looked at MeritCare as a leader,” Krabbenhoft said.

Despite the assurances, a member of the newly formed group that sought to slow down the merger, Citizens for MeritCare, said promises are one thing, although the reality of a merged organization sometimes don’t match the early descriptions.

“I’m just hoping it can happen the way they say it is,” said Tom Dawson, a Fargo insurance executive and former chairman of the MeritCare board.

Dawson said Citizens for MeritCare, which publicly raised questions about the merger last week, was not trying to derail the union.

Although a deliberative pace would be nice, “You also have to take opportunities by the horn,” Dawson said of the merger, which has been under discussion for four months and was made public June 17.

“These are good people involved,” Dawson said, yet he said it would be unfortunate that MeritCare would lose the CEO position. Presidents in Fargo and Sioux Falls would report to Krabbenhoft.

Among the merger details outlined Friday in a news conference:

  • Each health system would contribute seven members to the board. The joint CEO – Krabbenhoft – would be the 15th member. Any initiative must pass by more than one vote, so the CEO would not cast a tie-breaking vote, a step meant to ease any worries from MeritCare constituencies that it would be outgunned in the boardroom.

  • The merged organization would have cash reserves of $700 million, easier access to capital, and would be able to borrow at lower rates.

    “That’s a huge statement of financial stability and strength,” Krabbenhoft said. “We’ve built these organizations over a century.”

  • Joining forces will enable a higher degree of medical sophistication at both the Fargo and Sioux Falls centers, enabling new services that perhaps could include transplantations, Krabbenhoft said.

    “Now we can start talking about those kind of things,” he said.

  • The efficiencies and expanded network from a merger will better position the two for health reform, which will reward health providers that provide a full continuum of care in a cost-effective manner.

    A public dialogue about the proposed merger will take place in the weeks ahead, Gilbertson said. One of the first sounding boards, he said, will be a large ecumenical faith group that advises MeritCare.

    Readers can reach Forum reporter Patrick Springer at (701) 241-5522