Sanford, Mid Dakota CEOs defend merger
BISMARCK — Sanford Health and Mid Dakota Clinic executives took the stand to defend their companies' proposed merger in U.S. District Court Thursday, Nov. 2.
The merger is at the center of an anti-trust lawsuit filed by the Federal Trade Commission and North Dakota Attorney General. Thursday was the first day the defense offered testimony in a preliminary injunction hearing to halt merger talks until a formal FTC hearing can be held in Washington, D.C., near the end of the month.
The FTC and attorney general are alleging that the deal would violate antitrust law by significantly reducing competition for adult primary care physician services, pediatric services, obstetrics and gynecology services, and general surgery physician services.
The chief executives of both health care organizations made the argument to the judge that, should their organizations be allowed to join forces, CHI St. Alexius Health would be able to recruit new physicians and maintain competition in the Bismarck-Mandan market.
"CHI will be ready for the outcome (of this case) either way," said Sanford Health CEO Kelby Krabbenhoft.
CHI St. Alexius Health President Kurt Schley testified Monday that CHI employs five primary care physicians in its Mandan clinic, compared to nearly 60 employed by Sanford and Mid Dakota combined. In pediatrics, MDC and Sanford would have 20 physicians, 15 OBGYNs and 10 general surgeons at Sanford and Mid Dakota with few to none of each at CHI.
In early 2015, Mid Dakota was in talks with both Sanford and CHI St. Alexius Health over potential mergers, ultimately trying to make a deal with CHI.
When CHI was initially chosen, Krabbenhoft said his organization was disappointed but not surprised due to Mid Dakota and CHI St. Alexius' longstanding relationship.
"We just went back to the task at hand," of trying to meet his own operation's operational and expansion goals, he said.
But in spring 2016, Mid Dakota lawyers said CHI St. Alexius walked away for undisclosed reasons, which sent the clinic turning to Sanford.
Krabbenhoft said, as an independent clinic, Mid Dakota's search for a health care system to partner with is part of an industry trend that has been going on for about 20 years.
"There's been a significant amount of consolidation into integrated health systems," he said.
When Mid Dakota put its clinic on the market, Krabbenhoft said he was told the decision was driven by indications of potential financial stress in the future, as well as the industry's integration trend.
"There's room for (independent clinics in the market) but there's just not as many as there used to be ... The real competition now and in the future will go on between integrated systems," Krabbenhoft said, a scenario which he says fits CHI.
Krabbenhoft and Mid Dakota CEO Marvin Lein also testified that a period of expansion, in which Mid Dakota doctors will continue to admit patients at CHI, also will allow time for CHI to generate revenue while looking for replacement physicians.
The two CEOs said there are not enough beds, operating rooms or treatment rooms immediately available at Sanford to accommodate the Mid Dakota doctors. Buildout is expected to take two to three years.
Sanford and Mid Dakota will offer one more day of testimony Friday.