State OKs Dixon’s KSB Hospital, OSF merger

DIXON — KSB Hospital is making progress toward finalizing its merger with OSF HealthCare after the Illinois Health Facilities and Services Review Board gave its approval of the change in ownership, according to a joint news release issued Thursday by KSB and OSF.

The review board is responsible for approving applications for construction or expansion of health care facilities in Illinois.

"We are thrilled to receive the state's approval, solidifying our partnership with OSF HealthCare. This marks a significant milestone in our journey to enhance the quality of care that our community has come to expect," KSB Hospital President and CEO David Schreiner said.

As the transition continues to move forward, KSB Hospital and OSF HealthCare will collaborate to ensure a seamless integration and focus on maintaining the high standards of care that KSB has delivered, according to the release. The community can expect to see enhanced services and continued investments in local health care, reflecting both organizations' dedication to meeting the needs of the people they serve, according to the release.

"Our shared commitment to providing compassionate, high-quality care will guide us as we work together to serve the Sauk Valley community," OSF HealthCare Regional CEO August Querciagrossa said.

KSB Hospital, which employs 920 people, is an independent, nonprofit organization. The hospital is an 80-bed facility that offers traditional inpatient and outpatient services in downtown Dixon. KSB also operates an integrated medical group with 70 practitioners providing medical services in primary and select specialty areas at six locations in Lee and southern Ogle counties.

In February, KSB's board of directors announced that it was formally exploring potential partnerships due to escalating operating and staffing costs, as well as changes to health care financing and how patients use health care.

According to a resolution presented to the Dixon City Council on Aug. 5, KSB's board analyzed the feasibility of continuing to operate the hospital independently and found that it would likely lead to its closure.

Following the COVID-19 pandemic, the hospital experienced an increase in expenses including wages, pharmaceuticals, utilities, facility costs and medical supplies. Those increased expenses were not covered by increased reimbursement rates because KSB, like other rural hospitals, serves a large portion of patients on Medicare and Medicaid, which reimburse at a lower rate than commercial insurance, according to the resolution.

As a result, KSB operated with negative margins in 2022 and 2023. Those operating margin challenges led to the erosion of the balance sheet and in January 2024, the hospital's cash on hand dropped to five days, which made it impossible to borrow funds and reinvest in the organization, according to the resolution.

On May 10, KSB announced that it had signed a term sheet with OSF HealthCare marking their official partnership and anticipating a full merger.

OSF HealthCare, headquartered in Peoria, has 16 hospitals with 2,131 licensed beds throughout Illinois and Michigan. OSF has about 24,000 employees, known as "mission partners," across more than 150 locations. It operates OSF OnCall, a digital health operating unit; OSF Home Care Services, an extensive network of home health and hospice services; OSF HealthCare Foundation; and OSF Ventures, which provides investment capital for promising health care innovation startups.

The agreement includes $40 million in funding for facility renovations, to improve access to care locally and to create seamless referrals to subspecialties. With the affiliation, KSB expects the continued employment of its staff, significant investments in building and technology and enhanced access to specialty resources in the local community.

"The great thing is that enhancement really comes from dollars. We have an incredible network of staff right here at KSB," Dixon City Manager Danny Langloss said at the City Council meeting in August.

Schreiner that day also highlighted the hospital's continued local representation through a community advisory council and foundation board. He hopes that KSB's board of directors will consider continuing to be involved by serving on these boards.

The purpose of the foundation board will be to complete a periodic review of the contract between both organizations to ensure that all of the conditions are being met, Schreiner said.