A decade after merger talks collapsed amid intense scrutiny from Minnesota officials, the Minneapolis-based Fairview Health Services hospital network has announced its intent to combine with Sioux Falls, S.D.,-based Sanford Health, the largest rural health system in the nation.
The new nonprofit entity would be led by parent company Sanford Health and Sanford Health chief executive officer Bill Gassen, with Fairview chief executive officer James Hereford serving as co-CEO for a year post-merger.
Fairview officials said each existing health network would otherwise keep individual boards and leadership in their individual markets.
The boards of the two nonprofit hospital networks have already approved a non-binding letter of intent that seeks to cement the merger in 2023, but uniting the two hospital systems would require an anti-trust review, among other regulatory hurdles and closing conditions.
The state of Minnesota would need to sign off on licensing, insurance and charitable oversight.
Key questions
As in 2013, the prospect of a merger raises key questions about the fate of two teaching hospitals affiliated with the University of Minnesota but owned and managed by Fairview Health Services.
“Our sincere hope is that the University will join us in creating this new, combined system with Sanford,” said Aimee Jordan, a Fairview spokesperson, in an email. “Those conversations are ongoing.”
Also unclear is whether Fairview would retain its own branding and that of its “M Health Fairview” partnership with the University of Minnesota or simply adopt the Sanford name and logo.
State regulators said Tuesday they already have begun looking into the deal.
“We are aware of the proposed merger between Fairview and Sanford,” said John Stiles, deputy chief of staff to Minnesota Attorney General Keith Ellison, in an email. “We have opened an investigation into the proposed transaction’s compliance with charities and nonprofit laws. We are also evaluating any possible effects on competition along with state and federal partners.”
State Rep. Zack Stephenson, DFL-Coon Rapids, said he expected the merger details will be combed through by state lawmakers.
“The involvement of the state’s flagship medical school — which is one of the state’s foremost assets when you think about everything happening in healthcare — regardless of who is acquiring it, it bears close scrutiny by public officials, particularly when you’re talking about an out-of-state entity,” said Stephenson, chair of the House Commerce committee.
“I’m not saying no,” he added. “I’m saying this causes me some significant concerns.”
‘A combined system’
Combined, Fairview and Sanford — employing 34,000 and 47,000 employees respectively — would form an entity larger in size than the Mayo Clinic.
The Fargo Forum reported operating revenues of the combined system would exceed $13 billion, based on year-end financial statements for Sanford and Fairview in 2021, likely making the newly merged entity a top-10 nonprofit health system. Sanford’s operating revenue was $7.1 billion and Fairview’s was $6.4 billion.
The merger could provide some financial relief for Fairview, which last year posted a net operating loss of $132.5 million. Even after suffering a 28 percent decline from the year before, Sanford’s net operating income last year was $205 million.
“As a combined system, we can do more to expand access to complex and highly specialized care, utilize innovative technology and provide a broader range of virtual services,” said Gassen, in the written statement.
Officials with both hospital networks noted that M Health Fairview’s urban footprint and expertise in medical research and clinical trials complements Sanford’s focus on rural care.
Urban, rural footprints
Sanford, South Dakota’s largest private employer, oversees 47 medical centers and 224 clinics, including 19 hospitals and 70 clinics in Minnesota. That includes walk-in clinics, eye clinics, hospice care and other specialty centers in Bemidji, East Grand Forks, Cass Lake, Thief River Falls and other rural corners of northern Minnesota, as well as Fargo and Bismarck in North Dakota.
Through M Health Fairview — a contractual partnership between the University of Minnesota, University of Minnesota Physicians and Fairview Health Services — Fairview maintains 11 hospitals and medical centers, most of them in the Twin Cities, as well as 80 primary and specialty care clinics, 36 pharmacies, senior care housing and additional long-term care and medical transportation services.
In recent years, Fairview has taken cost-cutting steps, shuttering the state’s first hospital — St. Joseph’s Hospital in downtown St. Paul, which had been losing money — and repositioning the location as a wellness hub. The “Center for Community Health Equity” is now home to a federally-qualified primary care clinic run by Minnesota Community Care, a food packing effort and other health services.
Led by Hereford since 2016, the health network also closed the Bethesda Rehabilitation Hospital near downtown St. Paul, which is to become a 144-inpatient bed, stand-alone mental health center.
Why 2013 merger talks dissolved
Pointing to the closures of St. Joe’s and Bethesda on Tuesday, the Minnesota Nurses Association issued a statement opposed to the merger and signed by six nurses who work at the Bemidji Medical Center, the University of Minnesota Medical Center’s West Bank location and M Health Fairview’s Southdale Hospital.
The nurses called for financial transparency and, if a merger does go through, a commitment to keep community health centers open.
In 2013, merger talks between Sanford and Fairview dissolved following public hearings hosted by then-Minnesota Attorney General Lori Swanson. Critics argued for keeping local control of the two teaching hospitals used by the University of Minnesota.
“I don’t think we would want to have Minnesota assets under the control of somebody in another state, especially something as crucial as healthcare,” said Dakota County Commissioner Joe Atkins, who as a state lawmaker in 2013 introduced a bill to block transferring those medical centers from Fairview to any out-of-state entity.
“There sure as heck ought to be hearings about the potential advantages and disadvantages of exporting control of our healthcare system,” said Atkins. “This isn’t some small operation. It’s substantial.”
During the 2013 merger talks, then-Gov. Mark Dayton supported a plan for the University to take over the entire 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. Fairview bought the U’s East Bank medical school hospital in 1997.
Since then, a partnership between the University of Minnesota, University of Minnesota Physicians and Fairview Health Services created the M Health brand in 2013, followed by the M Health Fairview brand in 2018. The organizational structure approved by the University’s Board of Regents defines responsibilities for each entity but stops short of a formal merger.
During the 2013 talks, Swanson expressed concern that merging Fairview and Sanford would generate business for firms related to billionaire philanthropist T. Denny Sanford.
Born in St. Paul and educated at the University of Minnesota, Sanford, now 86, is the founder of First Premier Bank, a provider of subprime credit cards. Sanford does not sit on the board of the hospital network that bears his name.
