A decade after merger discussions fell under intensive scrutiny from Minnesota regulators, the Minneapolis-based Fairview Health Services hospital network has announced its intention to merge with the biggest rural health system in South Dakota, Sanford Health of Sioux Falls.
The new nonprofit organization would be managed by parent firm Sanford Health and Sanford Health CEO Bill Gassen, with Fairview CEO James Hereford acting as co-CEO for one year after the merger.
Otherwise, according to Fairview executives, each current health network would have separate boards and leadership in its respective areas.
The boards of the two nonprofit hospital networks have already adopted a nonbinding letter of intent that hopes to finalize the merger in 2023. However, combining the two hospital systems would need an antitrust assessment, as well as other regulatory barriers and closing conditions.
The state of Minnesota would need to approve licensing, insurance, and monitoring of nonprofit organizations.
Questions That Must Be Answered
As in 2013, the possibility of a merger raises significant concerns for the future of two teaching hospitals connected with the University of Minnesota but owned and administered by Fairview Health Services.
Aimee Jordan, a representative for Fairview, said in an email, “We really hope that the University would join us in building this new, merged system with Sanford.” These discussions are continuing.
Also unknown is whether Fairview would keep its current identity and that of its relationship with the University of Minnesota, “M Health Fairview,” or simply adopt the Sanford name and emblem.
State officials said on Tuesday that they had already started investigating the transaction.
“We are aware of the planned merger between Fairview and Sanford,” said Minnesota Attorney General Keith Ellison’s deputy chief of staff John Stiles in an email. “We have begun an inquiry into whether the planned sale complies with regulations governing charities and non-profit organizations. Together with state and federal partners, we are assessing any potential implications on the competition.
State Representative Zack Stephenson, DFL-Coon Rapids, anticipated that state legislators would scrutinize the merger’s specifics.
“The involvement of the state’s flagship medical school — which is one of the state’s most valuable assets when you consider everything happening in healthcare,” said Stephenson, chair of the House Commerce committee. “It warrants close scrutiny by public officials, particularly when an out-of-state entity is involved,” he added.
“I am not refusing,” he said. This statement gives me considerable anxiety.
Sanford Health and Fairview Merger
Fairview and Sanford, which have 34,000 and 47,000 workers, respectively, would constitute a bigger corporation than the Mayo Clinic when combined.
The Fargo Forum predicted that the combined organization’s operational revenues will reach $13 billion in 2021, based on the year-end financial statements of Sanford and Fairview, making the newly amalgamated company a potential top-ten nonprofit health system. The operational revenue of Sanford was $7.1 billion while that of Fairview was $6.4 billion.
The acquisition might give financial relief to Fairview, which had a net operating loss of $132.5 million in the previous fiscal year. Despite a 28 percent fall from the previous year, Sanford’s net operating income was $205 million last year.
“As a united system, we can do more to improve access to difficult and highly specialized care, use new technologies, and provide a wider variety of virtual services,” Gassen said in a written statement.
Officials from both hospital networks remarked that M Health Fairview’s urban presence and competence in medical research and clinical trials complemented Sanford’s emphasis on rural care.
The Urban Footprint
Sanford, the biggest private employer in South Dakota, is in charge of 47 medical facilities and 224 clinics, including 19 hospitals and 70 clinics in Minnesota. This comprises walk-in clinics, eye clinics, hospice care, and other specialist facilities in Bemidji, East Grand Forks, Cass Lake, Thief River Falls, and other remote areas of northern Minnesota, in addition to Fargo and Bismarck, North Dakota.
Fairview maintains 11 hospitals and medical centers, the majority of which are in the Twin Cities, in addition to 80 primary and specialty care clinics, 36 pharmacies, senior care housing, and additional long-term care and medical transportation services through M Health Fairview, a contractual partnership between the University of Minnesota, University of Minnesota Physicians, and Fairview Health Services.
In recent years, Fairview has implemented cost-cutting measures, including the closure of the state’s first hospital, St. Joseph’s Hospital in downtown St. Paul, which was losing money, and the repositioning of the site as a wellness center. The “Center for Community Health Equity” is presently home to a primary care clinic operated by Minnesota Community Care, a food packaging initiative, and other health services.
The health network, led by Hereford since 2016, also shuttered the Bethesda Rehabilitation Hospital in downtown St. Paul, which will become a 144-bed, independent mental health facility.
Why The Sanford Health and Fairview Merger Talks Fell Apart
The Minnesota Nurses Association issued a statement opposing the merger on Tuesday, citing the closures of St. Joe’s and Bethesda. The statement was signed by six nurses from the Bemidji Medical Center, the University of Minnesota Medical Center’s West Bank location, and M Health Fairview’s Southdale Hospital.
The nurses demanded financial transparency and a pledge to maintain community health centers in the event of a merger.
Following public hearings sponsored by then-Minnesota Attorney General Lori Swanson, merger discussions between Sanford and Fairview ceased in 2013. Critics contended that the two teaching hospitals used by the University of Minnesota should remain under local jurisdiction.
“I don’t think we would want to have Minnesota assets under the control of an out-of-state entity, especially something as important as healthcare,” said Dakota County Commissioner Joe Atkins, who as a state legislator in 2013 introduced a bill to prevent the transfer of Fairview’s medical centers to an out-of-state entity.
Atkins said that there should be hearings considering the possible benefits and drawbacks of outsourcing control of our healthcare system. “This is not a tiny enterprise. It’s significant.”
During the 2013 merger discussions, then-Governor Mark Dayton endorsed a proposal for the University to acquire the whole Fairview system, or at least its two Minnesota teaching hospitals: the University of Minnesota Medical Center and the University of Minnesota Masonic Children’s Hospital. In 1997, Fairview acquired the university’s East Bank medical school hospital.
A cooperation between the University of Minnesota, the University of Minnesota Physicians, and Fairview Health Services established the M Health brand in 2013, followed by the M Health Fairview brand in 2018. The organizational structure established by the Board of Regents of the University outlines the tasks of each institution but does not include a formal merger.
Swanson voiced worry during 2013 negotiations that the merger of Fairview and Sanford might create revenue for businesses affiliated to wealthy benefactor T. Denny Sanford.
Sanford, born in St. Paul and educated at the University of Minnesota, is the 86-year-old founder of subprime credit card issuer First Premier Bank. Sanford does not serve on the board of his namesake hospital network.