SIOUX FALLS, S.D. (AP) - It was 10 years ago that a crowd gathered at the Washington Pavilion on a Saturday afternoon to officially say goodbye to the past.
As the lights dimmed and a deep voice intoned, “A gift has been given to you,” the notion of Sioux Falls as a forgettable part of flyover country was replaced by a city poised to move from pause to fast forward.
Sioux Valley Hospitals and Health System CEO Kelby Krabbenhoft announced the seismic shift, taking the stage on Feb. 3, 2007, to announce one of the largest donations ever given to a medical institution and easily the most significant in South Dakota history, the Argus Leader (https://argusne.ws/2u1JBzC ) reports.
“Pay careful attention,” he told a gathering that included civic luminaries and hospital employees. “History is being made, and you are witnessing it.”
The $400 million gift from billionaire philanthropist and credit card magnate T. Denny Sanford was a “big bang” that changed the name of Sioux Valley to Sanford Health, established a network of worldwide clinics and initiated a research center with the stated goal of curing a major disease, which turned out to be Type 1 diabetes.
Just as importantly, it helped signify Sioux Falls’ rise in regional stature while sparking a competitive relationship with Avera Health, setting the stage for a burgeoning health care market with national and global reach.
Not everything was a smashing success. Some parts of the plan, such as a climate-controlled dome over parts of the Sanford campus, were dismissed as impractical, and researchers are still seeking that major diabetes breakthrough. Critics decried the avalanche of Sanford-named buildings and ventures, festooned with self-congratulatory statues, as contrary to the city’s more modest heritage.
But no one denies that the donation sparked growth. And lots of it.
In the decade since “The Gift,” Sanford Health has seen its annual revenue rise from $1.3 billion to $4.4 billion while its reach increased from 60,000 square miles to 250,000. The health system, which completed a merger with Fargo-based MeritCare in 2012, has 45 hospitals and 28,000 employees, up from 24 and 12,000 in 2007.
None of it would have been possible without the timely convergence of two outsized personalities, one with a big-ticket vision of how to revolutionize health care and the other with the means to make it happen.
Forging a lasting relationship with Denny Sanford, the First Premier Bankcard founder whose current wealth is listed as $2.1 billion, allowed Krabbenhoft to turn words into reality, from a castle-like children’s hospital and sports training empire to cutting-edge genetics research.
The bond between the 6-foot-6 Krabbenhoft and the diminutive Sanford is such as that nearly $1 billion has already been donated, with a 2014 gift of $125 million setting the stage for a Sanford Imagenetics Research Center to open this fall.
After an exclusive interview with Argus Leader Media alongside Krabbenhoft, the 81-year-old Sanford also floated the likely possibility that he will leave another $1 billion to the health system as part of his will when he passes away.
“Trust and respect are at the basis of every good relationship,” Sanford said of his connection to the hospital executive. “If either one of them is missing, it becomes, ’Take a hike, Jack.’ I absolutely trust this guy and respect him so much, and my goal is to make a difference. Not just put my name on something, but make a difference.”
He then shot a mischievous look at Krabbenhoft and added: “And he’s a very good pickpocket. Probably the best in town.”
VISION TAKES SHAPE
Krabbenhoft arrived in Sioux Falls in December 1996 after a successful stint as president of Freeman Hospital in Missouri. At the time, Sioux Valley Hospital was a formidable regional health care entity with $260 million in annual revenue, but the new boss wanted more.
A former college basketball player and son of a microbiology professor from Mankato, Minnesota, Krabbenhoft saw his return to the Upper Midwest as the beginning of a new era, one that would move at a brisk and ambitious pace.
With an inner circle that included administrators Becky Nelson and Dave Link, Krabbenhoft built an integrated system with a clinic of hospital-employed doctors, a health care plan, foundation and regional medical outlets.
The long-range outlook featured a “centers of excellence” strategy that focused on established revenue drivers such as orthopedics, oncology and cardiology. But a key component was missing.
“We wanted a free-standing children’s hospital, which didn’t exist in South Dakota,” says Krabbenhoft.
One of the reasons that none existed was that children’s hospitals are seen as a daunting industry challenge - expensive to build and not bursting with profit potential.
When asked by Sioux Valley staffers how he planned to make it happen, Krabbenhoft’s response was hopeful and somewhat cryptic.
“It’s going to take a white knight,” he told them.
FINDING A FORTUNE
Thomas Denny Sanford grew up in St. Paul and was heavily influenced by his father, William, who ran a wholesale garment business while serving the role of both parents.
“He never made a huge amount of money,” says Denny Sanford, whose mother, Edith, died of breast cancer when he was 4. “But he still gave back half of what he made to help his brothers and sisters.”
Sanford attended the University of Minnesota and later started a construction technology company that he sold in 1982 at age 46, walking away with $20 million. Rather than rest on his laurels, he purchased United National Bank four years later and formed First Premier Bank and Premier Bankcard in Sioux Falls, taking full advantage of South Dakota’s lax usury laws to master the subprime credit card industry.
By the late 1990s, Sanford’s soaring net worth allowed him to start donating toward children’s health causes, including $2 million to the Children’s Home Society in 1998.
“I could never have accomplished what I’ve accomplished in any other state other than South Dakota,” says Sanford, who recalled his father’s example and pledged to give away most, if not all, of his fortune.
In 2003, he had an agreement with the University of Minnesota to donate $35 million toward a new football stadium for his alma mater — a deal that included naming rights. When project changes arose and the price tag changed, Sanford walked away in frustration, seeking his next venture.
“He indicated to me that he was looking for a different place to put the funds that he had mentally earmarked for the University of Minnesota,” says Sioux Falls lawyer Dave Knudson, part of the billionaire’s representation. “And he wanted to do it in Sioux Falls.”
Knudson, who had also worked with Krabbenhoft and Sioux Valley, suggested Sanford meet with the hospital CEO to hear about future projects, including the proposed children’s hospital.
Before Sanford even said yes, Krabbenhoft was shaping his pitch.
That first meeting occurred in 2003 at Sanford’s winter home in Scottsdale, Arizona, where Krabbenhoft shared his vision of a state-of-the-art children’s hospital shaped like a castle that would put Sioux Valley at the forefront of pediatrics in the region.
Along with marketing director Cindy Morrison, Krabbenhoft packaged the pitch around an ornate wooden box containing project highlights and a video message asking Sanford to “imagine the possibilities” of their partnership.
“We wanted to show heritage and legacy,” says Krabbenhoft of that meeting. “It was the first time I ever shook his hand. I told him, ’You know, we’d really like to make this happen. If you’ll give us $16 million, I promise I’ll raise the other $16 million in 18 months, and we’ll get it done.’”
Satisfied with how the conversation went, Krabbenhoft started walking back to his group’s private plane when he saw Sanford’s car driving out to the tarmac.
“My first feeling was, ’Uh-oh,’ because this was all new at the time,” says Krabbenhoft. “But Denny rolls down the passenger window and says, ’You’re serious? You’ll get that match done and build this castle?’ And I gave him my word. So he says, ’OK, let’s do it.’ And we loved the sound of that phrase.”
SEARCHING FOR MILESTONES
As Denny Sanford’s gifts became more significant, they included matching components or milestone reports to ensure promises were kept. The man doesn’t donate without expecting results.
In 2005, he gave $15 million to Mayo Clinic in Rochester, Minnesota, for an outpatient pediatric specialties center. Soon after, he teamed with Sioux Valley to place $20 million with the University of South Dakota Medical School, which became the Sanford School of Medicine.
“It was a maturing of his vision for himself as a philanthropist,” says Knudson. “He saw it not just as giving money but as becoming a major part of his life’s work.”
Meanwhile, Krabbenhoft’s mind was working overtime. A hard-driving executive who saw the importance of expanding Sioux Valley’s reach beyond the Upper Midwest, he saw Sanford’s increasing involvement as a possible game-changer.
By October 2005, Sioux Valley had raised matching funds for the children’s hospital and was preparing to break ground, which raised a nagging question: Where does the vision go from here?
“I was getting ready to go to Colorado to tell Denny that we’d made the money match on the $16 million and construction was going to start, so I had a great story to tell him,” says Krabbenhoft. “And I felt there was an opportunity to say to him that maybe we should think bigger. I just got the sense that he didn’t want to just do what everybody else was doing. It was this feeling of, ’Let’s do it unique. Let’s do it big.’ “
Cindy Morrison recalls working late one night when Krabbenhoft passed by her office and mentioned almost casually that he was planning to ask Denny Sanford for $400 million.
“My reaction was like, ’What? Are you kidding me?’” says Morrison, now vice president of public policy at Sanford. “But that’s what you see with two big personalities. You had Kelby, who had the guts to ask for $400 million, and you had Denny, who had the ability to provide it. And what came next was the big bang.”
GIFT FOR THE AGES
The $400 million figure didn’t come out of nowhere. Krabbenhoft calls it “math of the objectives” as he plotted out a Mayo Clinic-like center for pediatrics. He envisioned a groundbreaking research project, a network of children’s clinics and a “futuristic campus” including a climate-controlled dome to help recruit talent to a harsh South Dakota climate.
“I didn’t want to ask for a chunk of money and then have to ask for another chunk the next year,” Krabbenhoft says. “We were looking at a kind of endowment situation, where you put 5 percent return on a certain amount to fund your objectives, and it came out to be $400 million. It wasn’t magic. It was math.”
The meeting started as an update on the children’s hospital during a visit to Sanford’s home in the mountains of Vail, a friendly give-and-take around the kitchen table that also included Nelson and Sioux Valley Foundation president Brian Mortenson.
After offering his update, Krabbenhoft pivoted to a pitch on the network of pediatric clinics and a cutting-edge research center with the goal of curing a major disease during Sanford’s lifetime, catering to the billionaire’s milestone-based mentality.
When the figure of $400 million came up, Sanford “sort of gasped or choked a little,” recalls Krabbebhoft. Then he looked at Krabbenhoft and said, ’Do you know the magnitude of what you’re asking?’”
The answer came quickly: “Yes, sir. I do.”
Sanford jokes that the plan was to get him in his Colorado home at 9,000-foot elevation so he couldn’t think clearly, but he was undoubtedly impressed by what came next.
Krabbenhoft started talking about how the name “Sioux” was outdated and “Valley” had no geographic authenticity, leading to a desire to change the health system’s brand to something that would signify a fresh era and vision.
“I’d really like your name,” said Krabbenhoft, which had an effect on Sanford. He agreed to the historic donation in principle, laying the foundation for a 2007 gift that would help accelerate a city’s future and make his name synonymous with that surge.
As the contingent was leaving, Sanford put his arm around Nelson with a grin and said with his sly sense of humor, “I guess we should all be happy my name’s not Krabbenhoft.”
FUTURE IN FOCUS
Pay a visit to the Sanford Health corporate campus in northeast Sioux Falls and you’ll see a two-story “collegiate gothic” building under construction, within full view of Interstate 229.
The $6 million project, to be fully completed by next year, is officially labeled the Sanford Foundation House but is more casually known as “Denny’s House,” a presidential library of sorts to honor his philanthropy and court other potential donors.
Sanford nixed the initial plan and persuaded Krabbenhoft to build the house near a lake on the property. No one argued with the man who could end up donating more than $2 billion to the health system when all is said and done.
“I sometimes have to remind people that when they meet (Sanford), they’re talking to the single largest health care philanthropist in the world,” says Krabbenhoft. “It would be like talking to the Mayo brothers or Johns Hopkins himself.”
The effect of “The Gift” still resonates 10 years later, with ripples extending from health clinics in Asia, Africa and Europe to quality-of-life enhancements in Sioux Falls. Both Sanford and Krabbenhoft agree that their historic partnership calls for more, such as a cure for Type 1 diabetes during Sanford’s lifetime.
As researchers toil away in Sanford labs and clinical trials are offered, the clock is ticking.
“We talked about the time frame at the beginning, and for me that’s getting the job done so he can see it,” says Krabbenhoft. “I want his eyes to be there. He’s going to be around a while, but the truth of the matter is that there is pressure when you talk about one man’s promise to another, and that’s a heavy lift.”
Increasing attention is being paid to stem cell research, with Sanford Health opening a clinic in Germany where regenerative procedures are performed under the direction of Munich-based physician and researcher Eckhard Alt, chair of the Sanford Project.
Denny Sanford toured the Munich facility and underwent a knee procedure a few years ago, ever mindful that his money is used wisely and meaningful advancements are made. When he and Krabbenhoft took the stage a decade ago to stagger the local landscape, the quest for the big bang was really just beginning.
“There’s no doubt that at the end of the tunnel he wants an explosive transformation,” said Krabbenhoft. “Our job is to make that happen.”
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Information from: Argus Leader, https://www.argusleader.com
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