The Evangelical Lutheran Good Samaritan Society and Sanford Health took a key step forward in their plans to merge, signing an affiliation agreement Tuesday to combine the two Sioux Falls, S.D.-based non-profit organizations.
Pending regulatory review, hospital chain Sanford and senior care heavyweight Good Samaritan expect to combine by Jan. 1, 2019. The result — if everything goes according to plan — will be an integrated delivery system that will offer services across the full surface of the care spectrum, Grant Tribble, Good Samaritan’s chief financial officer told Skilled Nursing News.
“We each recognize the importance of vertical and horizontal integration across the health care delivery system,” he told SNN. “If you think about Sanford now … really they never had a very specific approach to long-term care (LTC). The two organizations coming together could offer a lot more synergy and expertise and ability to deliver a broader range of care.”
Location, location, location
Good Samaritan is one of the largest non-profit senior care providers, with 19,000 employees in more than 200 locations across the U.S.; about 80 of those locations are skilled nursing facilities.
That national footprint spans 27 states, while Sanford’s 44 hospitals and 28,000 employees cover nine states. Sanford isn’t in many of the non-profit’s existing markets, Tribble acknowledged, but both organizations saw this lack of overlap as a way to broaden their reach.
“We didn’t feel like it was an encumbrance,” he said. “We felt like in many ways it was an opportunity for the organizations to come together and bring different pieces of expertise that we’ve worked on together but separately, and build upon that.”
But they do have one key area of overlap: Both have operations in very rural markets, Lisa McCracken, director of senior living research and development at Chicago-based specialty investment bank Ziegler, told SNN. Good Samaritan has a particular focus on health care, and its portfolio has a heavy emphasis on skilled nursing compared with its not-for-profit senior living peers. That’s important because rural skilled nursing care “is a very different type of animal,” she said.
One question around the merger will be whether the combined entity downsizes its skilled nursing portfolio. Tribble did not directly say whether Good Samaritan would divest LTC facilities as a result of the merger, but said the alignment will not affect the Society’s constant assessment of the performance of individual facilities.
“Where the Society sits that Sanford is not, we believe that’s a great strength to bring to the table to look at expanding those footprints, rather than diminishing,” he said.
But non-profits in skilled nursing have been hit particularly hard in the recent past, and the question of downsizing LTC presence has been a common talking point for several organizations, McCracken said.
“We know that actually Good Sam has been downsizing their skilled nursing over the years,” she pointed out. “And that’s consistent with others, and that’s not unique to them. But will they continue to trim that sort of portfolio to align with where they’re going? Obviously they’re committed to skilled nursing care and post-acute care, but it’ll be interesting to see what it looks like in the future.”
Care delivery alignment
Integration will be a key part of providing LTC services in the combined Good Samaritan/Sanford entity in several areas, Tribble said. Some of those areas include integration of LTC physician practice work and insurance, he said.
The health insurance discussions will be of particular note, Tribble said. Sanford has a health insurance plan of its own that is both offered to employees and sold on the traditional health insurance market, while Good Samaritan has an institutional special needs plan (I-SNP), a waiver from the Centers for Medicare & Medicaid Service to offer a special-needs Medicare Advantage plan in Nebraska and the Dakotas.
Good Samaritan’s I-SNP covers approximately 870 beneficiaries, and it actually uses the Sanford nurse practitioner (NP) program in each of those states for network coverage — which it did even before the merger talks began, according to Tribble.
“Those are the types of organizational alignments that this integrated delivery system can really maximize,” he said. “That’s a very real possibility for the near future for an organization like Sanford and the Society to get to look at these very challenged rural locales … Things like I-SNP programs will be a great ability for an integrated system to be able to add provisions of care, and those are not hospital-specific. We could be working in those I-SNP programs, and it could be in a locale where Sanford may or may not be.”
The deal isn’t exactly a surprise — the organizations agreeing on a mission statement and the ground rules for their partnership was announced in January — but “it’s clearly going to grab the attention of a lot of individuals,” McCracken said.
“As it relates to senior living and senior housing, you don’t see a lot of hospitals and health systems jumping into that market,” she noted. “It’s in that post-acute space where you see them actively engaged.”
The deal came after Welltower Inc. (NYSE: WELL), one of the largest U.S. health care real estate investment trusts (REITs), reached an agreement in early 2018 to acquire Quality Care Properties (NYSE: QCP) and own the real estate of skilled nursing operator HCR ManorCare in a joint venture with non-profit health system ProMedica. McCracken said she thinks the announcements coming so close together was more a coincidence than anything else.
But Good Samaritan/Sanford deal does show that the skilled nursing space isn’t getting any easier, and it reinforces how competitive the SNF environment is, she added — particularly since Good Samaritan was much more exposed to the ongoing changes in that sector than some of its peers in the not-for-profit space.
“I think people will think [the merger] is a good fit, given how health-care centric [Good Samaritan] is,” she said. “But I also think it’s going to be a wake-up call to organizations that this isn’t just the little guy saying ‘Hey, I want to join somebody!’ These are big, high-level conversations on solid platforms and organizations.”
Written by Maggie Flynn