Ceremony marks completion of Dixon’s KSB Hospital, OSF HealthCare merger

DIXON — After nearly 130 years of operating independently, KSB Hospital‘s merger with OSF Healthcare was solidified at a blessing Tuesday afternoon.

KSB – now renamed OSF HealthCare Saint Katharine Medical Center – is the 17th hospital in the OSF ministry.

KSB Hospital was first established in 1897 when Judge Solomon H. Bethea, a federal judge and mayor of Dixon in the early 1880s, gifted his estate to the city of Dixon for it to be established as a local hospital in honor of his late wife, Katherine Shaw Bethea.

ExpandAutoplay

Image 1 of 6

Local Catholic leaders pray during the blessing of the new OSF HealthCare Saint Katharine Medical Center Tuesday, Jan. 7, 2025, in Dixon. OSF recently took ownership of KSB. (Alex T. Paschal)

Over the years, that downtown Dixon location grew to an 80-bed facility offering traditional inpatient and outpatient services, employing 920 people and operating an integrated medical group with 70 practitioners at six locations in Lee and southern Ogle counties.

The new name, OSF Saint Katharine, pays tribute to the hospital’s long-standing commitment to the Sauk Valley region and aligns with the values of OSF, according to a Tuesday news release from OSF.

At Tuesday’s blessing, something that is a tradition for OSF when any new building opens, Bishop David J. Malloy of the Rockford Diocese led the ceremony along with Father John Evans of St. Patrick Catholic Church in Dixon.

OSF took over operations at KSB on Jan. 1 and welcomed 900 new employees to OSF - a transition that OSF Saint Katharine President Jackie Kernan said has gone smoothly.

Kernan said the community can expect to see the same familiar faces at the hospital and for OSF to enhance the quality care already provided by KSB.

OSF, headquartered in Peoria, is an integrated Catholic health system that operates 16 other hospitals throughout Illinois and Michigan and has about 24,000 employees, known as “mission partners,” across more than 150 locations.

On May 10, 2024, KSB announced that it had signed a term sheet with OSF marking their official partnership and anticipating a full merger. The agreement includes $40 million in funding for facility renovations, to improve access to care locally and to create seamless referrals to subspecialties.

“There was a great deal of concern and assessment that went into [the KSB board of directors'] decision to affiliate with another organization,” Mayor Glen Hughes said Tuesday. “The community’s economy, health and safety would be absolutely devastated if Dixon lost its primary health care facility.”

The selection process: behind the scenes

It all began back in February 2024 when KSB 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.

It was a decision that former KSB Board Chairman Dave Hellmich said was “difficult and filled with emotion.”

According to a resolution presented to the Dixon City Council on Aug. 5, 2024, KSB’s board of directors analyzed the feasibility of continuing to operate the hospital independently and found that it likely would lead to its closure.

After 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 a city 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.

Once it was decided that KSB would seek affiliation, the board developed an extensive list of qualities that it was looking for in potential partners. Hellmich described the search as being similar to a call-for-grant proposals in which an organization will post a grant opportunity and list all of the requirements for recipients.

“The big question for us was what’s the best thing for our patients,” former President and CEO of KSB Dave Schreiner said in an interview with Shaw Local.

From there, nine health systems expressed interest in the possibility of affiliating with KSB. Hellmich was unable to disclose the names of those systems due to confidentiality agreements, he said.

Those nine systems were invited to submit an informal proposal, which were reviewed by the board. The board then identified six systems to speak with further, Hellmich said.

At that point, an affiliation committee, a subset of the board, was developed to meet with those six systems. Hellmich and Schreiner were members of the committee along with Joe Welty, a KSB family medicine doctor and former board member; Austin Fraiser, former CFO of KSB; and Rich Boysen, a former board member, Hellmich said.

The meetings were held virtually. Each system gave a presentation before the meeting opened up into a conversation, he said.

Of those six, the committee identified OSF HealthCare and one other system as the finalists. After studying each system’s final detailed proposals, the committee met to vote on its recommendation to the board.

Hellmich remembers that evening vividly.

“It was a really intense conversation, and I actually, I wasn’t sure where we were going to end up,” he said.

“We knew all along that there would be some concerns in regards to reproductive care. We knew that. Those were concerns for us, too,” Hellmich said. “It really weighed on us. We did not dismiss that.”

As a Catholic health care organization, all of OSF’s locations abide by the directives set forth in the Ethical and Religious Directives for Catholic Health Care Service. Within those directives, there are several limitations to reproductive care, specifically within medical birth control and contraceptive practices, terminating a pregnancy, infertility treatments and alternatives.

[ Dixon’s KSB Hospital merger with Catholic organization sparks reproductive healthcare concerns ]

However, Hellmich and Schreiner said the biggest deciding factor that stood out about OSF was its policy of accepting and treating all patients even if they don’t have the ability to pay for the services.

“That was not necessarily the case with some of the other hospitals that we were looking at, and so the reproductive care was a concern, but this, the access to care for everybody, especially folks who may not have the means to pay, more than balanced that out for us,” Hellmich said.

Schreiner also pointed to OSF’s vast amount of resources on the medical and business side as a key factor in the decision – some of which includes 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.

Similarly, the second thing that stood out about OSF for Hellmich was the expansion of services that it could bring to the Sauk Valley as well as its network of nearby locations that makes it easier for patients to be transferred within the system if the service they need can’t be provided in Dixon.

The final thing Hellmich pointed to was the financial stability of OSF.

“We are absolutely certain that Dixon and the Sauk Valley will have quality hospital care from OSF indefinitely,” he said. “OSF is not going to get bought out by somebody else.”

Still, the limitations to reproductive care “weighed very heavily on the board,” Hellmich said. What it came down to was that OSF outperformed all of the other health systems in those three areas that he pointed out.

As a result, the committee voted to recommend that the board select OSF as its partner.

The board - which consisted of Hellmich, Welty and Schreiner as well as Lauren Roth of Dixon, Patrick King, a Dixon dentist; Lynn Knodle, former CEO of Serenity Hospice and Home; Ray Neisewander, chairman and CEO of Raynor Garage Doors; Colleen Henkel, president and CEO of First National Bank in Amboy; and Rick Curia, dealer principal at Ken Nelson Auto Group - voted unanimously to affiliate with OSF, according to Hellmich.

The future of OSF Saint Katharine

With the merger complete, “we’re excited about the future, but at the same time, it is bittersweet,” Hellmich said.

“The focus is on all the great things that OSF is going to do for the community,” Schreiner said. “It’s an exciting new start and I’m looking forward to the years ahead.”

OSF Saint Katharine will soon offer new services to the community, including OSF OnCall and OSF MyChart with the integration of Epic, the electronic medical record system used across the OSF Ministry. This will expand the focus on digital health access and other opportunities, according to Tuesday’s news release.

In the hospital’s intensive care unit, one enhancement will be the use of Virtual Intensive Care by OSF OnCall, a remote patient monitoring system, KSB’s former Director of Business Development Kevin Marx said.

A local community advisory council has been established to provide advice and counsel to hospital management and OSF. The council will focus on insight, guidance and the development of local strategies, in addition to providing feedback on the management of local facilities, the release said.

“We have a great opportunity in Dixon and surrounding communities to advance health care that is connected to all the other pieces of OSF,” CEO of OSF’s Western Region AJ Querciagrossa said. “It’s no different than our other communities, like Galesburg or Peru. When we talk about regional health care delivery models, I look at Dixon as a regional health care delivery model that will have access to higher, tertiary and quaternary care through the OSF network.”