Executive Embraces Challenge of Creating Top-Tier Pediatric Clinics

Kelby K. Krabbenhoft has overseen a decade of rapid growth here at Sioux Valley Hospitals and Health System, but

that’s nothing compared with his vision for the future. The system, renamed Sanford Health this month following a $400-million gift from the billionaire T. Denny Sanford, aspires to become a pediatrics version of the Mayo Clinic, which is known as a national leader in work with geriatric patients.

The system will use the gift — one of the largest donations to a medical institution — to open a small chain of pediatric clinics around the country. System officials also hope to make an immediate splash with what they call the Sanford Project — a research effort based here that would attempt to solve “one of the pressing medical issues of our day,” ideally during the 71-year-old Mr. Sanford’s lifetime.

“I expect the best researchers in the world to be taking a number,” Mr. Krabbenhoft says. “They’ll walk in here one at a time, and I’m going to ask them straight up: ‘Do you have the pizzazz and the force and maybe some of the resources to solve the most compelling health challenge of our time?’ If they give me blank stares and don’t get it, next number. We’re going to go right through that line.”

System officials say they plan to hold on to the $400-million from Mr. Sanford, who made his fortune through a credit-card company based here, and use investment returns on the gift to support the new programs. The system will spend $30-million to $50-million over 10 years to open at least five pediatric clinics in the United States, and perhaps one each in Canada and Mexico. Sanford Health will spend $50-million over the next decade to build up its joint research operation with the medical school of the University of South Dakota, and an additional $30-million on the Sanford Project. They expect to attract an equivalent amount of spending for the research efforts from outside sources, such as the National Institutes of Health.

Mr. Krabbenhoft also envisions a study of children’s health that would track as many as 25,000 kids — most of them born here in Sioux Falls — from birth to adulthood. The children would have to answer survey questions, and perhaps submit to a blood test, every year. The system would entice parents to participate by promising to set aside some funds — maybe as much as $1,000 — to help pay for college.

The system’s plans, which were announced publicly on February 3, are likely to draw questions from some national health-care experts about whether these goals are excessively ambitious for a little-known regional health system in South Dakota.

“It’s a Hoosiers moment for us,” says Mr. Krabbenhoft, who is also a former college basketball player. “I think we can go in there and beat the big boys.”

Mr. Sanford, who made a few dozen venture-capital investments during his business career, likes the idea of trying something new. He acknowledges that “there’s no proven model” for establishing a national chain of pediatric clinics, but he’s unfazed by what may be long odds.

“If it doesn’t have the success that we’re hoping — and by that I mean providing better care for children than other centers — then we’ll redirect the funds” elsewhere within the Sanford Health system, he says.

$52-Million Hospital

The health system has grown rapidly since Mr. Krabbenhoft began work there. The system had revenue of $1.36-billion last year, up from $294-million in 1996. It also has added what it calls “centers of excellence” in areas such as cancer, orthopedics, and women’s health. As a result, outpatient and clinic visits have quadrupled over the past decade.

Prior gifts from Mr. Sanford have contributed to the system’s growth. This spring, Sanford Health will break ground on a $52-million children’s hospital. The system has already raised more than $30-million for the project, thanks in large part to a $16-million gift from Mr. Sanford in 2005 that will match the sums fund raisers are soliciting from other sources.

Over the next 20 years, Sanford Health expects to use $45-million to $90-million from Mr. Sanford’s new $400-million gift to expand and hire staff members for the children’s hospital.

Also in 2005, Mr. Sanford gave $15-million to the Mayo Clinic, primarily for a pediatric clinic at the Rochester, Minn., campus, but he required that a third of the gift be used to support joint research programs with the new children’s hospital in Sioux Falls.

And when Mr. Sanford gave $20-million for expansion projects at the University of South Dakota’s medical school, he placed the money with the Sioux Valley health system, which provides the primary teaching facility for the medical school. The health system is giving the money to the medical school over nine years.

Sanford Health officials envision a much larger campus in the decades to come, with as many as 20 new facilities. Most of this construction, however, would come from other sources, as Mr. Sanford’s gift will be used only for research and education buildings.

Even before the announcement of the $400-million gift, Mr. Krabbenhoft was quietly conducting a search for an executive to oversee the new efforts.

Although a committee of scientists will help determine the focus of the Sanford Project, Mr. Krabbenhoft thinks the program will probably involve the use of new genetics research and technology to combat a childhood health disorder that occurs just before or after birth. Mr. Sanford says he would love to see his money lead to a significant medical advance during his lifetime, and he also believes a medical breakthrough would help Sanford Health’s reputation. “It will put us on the map, nationally and internationally,” he says.

Mr. Krabbenhoft says he is prepared to be the “bear in the closet” to prevent the effort from bogging down. “I don’t know how to solve the answer to whatever questions we’re going to pursue,” he says. “But I know the process it’s going to take to get there, and that it is going to be a function of will and resolve.”

Mr. Krabbenhoft says he has no concerns about changing the name of the 100-year-old institution to Sanford Health, noting that Sioux Valley has become much more than a hospital over the past decade.

“It’s time,” he says. “We’ve cut our umbilical cord from the past.”

‘Results Oriented’

Mr. Krabbenhoft met Mr. Sanford only three years ago, months before they began discussing the $16-million gift for the children’s hospital. Even so, they have become friends; in November, Mr. Sanford invited Mr. Krabbenhoft to join him on a trip to Africa.

“Somebody stole a little bit of his and my DNA and threw it together,” Mr. Krabbenhoft says. “We’ve had a gas.”

Mr. Sanford says he has “a great deal of confidence” in the health system’s leaders. “I’ve seen them transform themselves from a very well-run organization to a superior organization,” he says.

But during an interview at Mr. Sanford’s home in Scottsdale, Ariz., when Brian Mortenson, who oversees the health system’s fund-raising arm, suggested The Chronicle publish a photograph of Mr. Krabbenhoft and Mr. Sanford together, Mr. Sanford said he would prefer to be pictured alone.

“He still has to perform for me,” Mr. Sanford said.

That story did not surprise Mr. Krabbenhoft.

“With Denny Sanford, the results have got to be there,” Mr. Krabbenhoft says. “He’s not a patient man — he’s very kind, generous, and giving — but he is results oriented like any successful CEO is. I get the chance to live up to those expectations.”