University of Minnesota Proposes to

Take over Fairview Health System 

From the Pioneer-Press

The University of Minnesota has proposed a takeover of Fairview Health Services, the Minneapolis-based health system that operates the university's flagship teaching hospital and is one of the state's largest health care providers.

U President Eric Kaler outlined the proposal in a January letter that university officials released on Thursday, April 4.

Why the big hurry?

"We propose a new combination of our organizations in which the university acquires control of, and commits to enhance the historic mission of, Fairview in our state," Kaler wrote. "I think it's time we seriously evaluate a more ambitious combination of our organizations."

 Acquires control?  Bet Fairview will be happy with this offer/ultimatum?

Since 1997, Fairview has operated the U's teaching hospital in Minneapolis through an affiliation agreement.

Which was a big mistake. And these these developments are a tacit admission of failure. 

The disclosure comes just days before Attorney General Lori Swanson is scheduled to conduct a hearing at the Capitol on merger talks between Fairview and Sanford Health, a large hospital system based in the Dakotas. In March, Swanson publicized merger talks between the parties -- which had been rumored for months -- saying public input was needed on the fate of the university hospitals.

Since opening its first hospital in 1916, Fairview has grown to become one of the state's largest networks of hospitals and clinics. Beyond the university hospitals, Fairview currently operates five community hospitals including medical centers in Burnsville, Edina and Wyoming; its clinic system includes more than 2,000 physicians.

In his letter, Kaler stressed that the university wants to be part of "a Minnesota-based health care organization." That's in contrast to Sanford, which claims dual headquarters in Sioux Falls, S.D.; and Fargo, N.D.

On Thursday, Swanson issued a statement stressing her preference for keeping control of the U's teaching hospitals within the state.
"The University of Minnesota hospital is one of the most renowned institutions in Minnesota," Swanson said. "There is deep concern among university physicians, patients and Minnesota citizens with the notion that an out-of-state organization could assume control of this important part of the Minnesota legacy."

Charles Mooty, the interim chief executive officer at Fairview, said his organization's board of directors is scheduled to hold a meeting Monday to learn more about Kaler's proposal. Swanson's public hearing on the possible merger with Sanford Health, meanwhile, is scheduled for Sunday.

Mooty said Fairview's board will weigh the merits of both options.
"It would actually, potentially, be some kind of combination of Fairview and the university's assets," Mooty said of the deal proposed by Kaler. "The challenge that we have is, we really don't know what their proposal is right now."

In his letter, Kaler wrote that the nation's leading academic medical centers benefit from close collaborations between the teaching and research missions of a university and the clinical expertise of a community health care system featuring many hospitals and clinics.

Such an integrated system, he wrote, also is in a better position to handle changes coming for hospitals as the federal health care overhaul law of 2010 fully kicks in.

A spokeswoman for Sanford Health did not immediately respond to a request seeking comment on the U's proposal. The health system is named for St. Paul-native Denny Sanford, who graduated from the U in 1958.

Sanford has launched several companies over the years including Sioux Falls-based Premier Bankcard Inc., a leader in the credit card industry. In 2007, he announced a $400 million gift to Sioux Valley Hospitals and Health System, which became known as Sanford Health.

The system subsequently grew into North Dakota and Minnesota. By 2011, the health system included 15 affiliated hospitals in Minnesota, according to the Minnesota Department of Health.

A partnership with Sanford is attractive because it could promote cost savings by creating one very large health system, said Mooty, the interim CEO at Fairview. The new system could pool resources in developing a common electronic medical record, he said, while becoming more efficient in purchasing supplies and services.
Plus, there's no geographic overlap between the hospital and clinic networks operated by Fairview and Sanford, Mooty said. Fairview's system is focused on the Twin Cities while Sanford's operations are in the north, central and western portions of the state.

But Mooty said that Fairview would not merge or partner with Sanford over the objections of the university.

"The real merit of any partnership is that our world of health care is going through significant change," Mooty said. "The expectations are going to be even that much greater for these health systems to be able to deliver not only great quality but in a cost-effective manner."
Fairview has been a successful organization, Mooty said, but nonetheless is responding to "a wave of consolidation" in the nation's hospital industry. A clear example of the trend came to the Twin Cities in 2012 with the announced merger of Bloomington-based HealthPartners and Park Nicollet, which is based in St. Louis Park.

In his January letter, Kaler argued that the U's leadership would let the Fairview system grow more quickly. He cited the U's strong finances, ability to raise capital at a lower cost and success with private philanthropy.

Kaler said the university was prepared to appoint a "core transaction team" and hire both legal and financial advisors with the goal of finalizing a letter of intent for the new relationship within 90 days.

Back in 1996, the university's regents approved the sale of what is now the University of Minnesota Medical Center, Fairview, to the health system for $87 million. Mooty said the university hospital at the time was "in great distress and not financially sound."

"Fairview came in, created stability, created activity and really has grown that business," he said.

But in his letter, Kaler said the "relationship needs to improve to provide the maximal value to our community." Some at the university have argued, for example, that Fairview has failed to provide enough financial support for the U's teaching and research missions.

"Partnering with the university offers Fairview a singular opportunity to become a leading national center in which to model and adopt the latest research and ideas for innovative health care delivery, cures and treatments," Kaler wrote. "By creating a truly integrated system with unified governance, we will strengthen Fairview's community hospitals through enhanced service commitments to communities across Minnesota."

Oh, boy... 

A link to the pdf of the letter from President Kaler to Fairview is provided in the original article in the Pioneer Press.  I provide another one here in case the PP link becomes unavailable in the future.


Letter to Fairview from President Kaler