Sanford, Fairview revives the merger discourse, a decade after the failure of the last attempt

A mega-merger of the Sanford and Fairview health care systems is back on the table in Minnesota, a decade after state political concerns scuppered a similar deal.

Leaders from Sioux Falls-based Sanford and Minneapolis-based Fairview signed non-binding letters of intent to merge and publicly acknowledged the negotiations Tuesday, saying the deal will inspire innovation, improve healthcare to patients and will protect them from the growing economic challenges of their industry.

If successful, the combined system would be based in Sioux Falls, SD, and would be one of the largest health care providers in the Upper Midwest, consisting of 78,000 employees and more than 50 hospitals, including the University of Minnesota Medical Center.

Sanford and Fairview have yet to sell state regulators and lawmakers on the merits of the deal as they negotiate the details with the U to avoid litigation like the ones that doomed the merger 10 years ago.

“I would just say that 2013, while only a decade ago, is forever gone. Different conditions. Different people. Different organizations. Different relationships,” said James Hereford, chief executive officer of Fairview. “And I think all of these differences result in a very different outcome.”

Sanford operates 47 medical centers in the Dakotas and rural western Minnesota, while Fairview’s 10 hospitals are largely concentrated in the Twin Cities.

Sanford’s CEO reportedly led the merged entity out of South Dakota, which was a flashpoint in 2013. At the time, Minnesota’s attorney general and other opponents denounced the idea that U hospital, the primary taxpayer-supported training venue for most of the state’s physicians – would be operated by an out-of-state organization.

Bill Gassen, the chief executive officer of Sanford Health, told the Star Tribune that the new health system will maintain “a very material corporate presence” in the Twin Cities.

Hospitals nationwide have been harmed by the COVID-19 pandemic leading to financial and staffing shortages. Gassen said the merger is about more than just survival; it would combine the strengths of two health care systems with “similar missions” in ways that would expand equitable access to in-person and virtual care.

“Doing that just to get bigger isn’t going to work, simply put,” Gassen said.

Both boards approved the negotiations. Pending regulatory reviews, the two sides seek to close the deal in 2023.

Sanford Health would get top billing as the parent company of the integrated system.

But many issues still need to be resolved in the negotiations, including whether to retain the M Health Fairview brand for many of Fairview’s healthcare operations and how to marry the two systems’ employee models. Fairview hires some of its own staff, but also employs unionized hospital nurses and relies on U faculty physicians with its own independent group practice.

The University of Minnesota sold its teaching hospital in Fairview in the 1990s, a historic deal that closely links the health care system to the US health mission.

In 2013, the U’s concerns were a key factor in the decision to cancel the Sanford merger. At the time, Minnesota state lawmakers introduced legislation to prevent control of U Hospital from being transferred out of state. Others have backed a competing plan for the University’s takeover of Fairview.

Myron Frans, senior vice president for finance and operations at the U, said the university was briefed on the new merger talks in August and was involved in joint meetings with Fairview and Sanford.

The U needs to know more about what the merger would mean for Fairview’s financial support for teaching, research and health care at the university, Frans said. Another question: How would the combination help fix Fairview’s financial challenges.

“We are in the very early stages of the discussion,” Frans said, “and we need to understand more.”

Neither Gassen nor Hereford were in charge at the time of the 2013 merger talks. They rekindled the idea over dinner at a healthcare conference in late May.

Founded in 1906, Fairview Health Services operates more than 80 primary and specialty clinics, 36 retail and specialty pharmacies, and major suburban hospitals in Edina, Maplewood and Woodbury. Its ambulance division responds to more than 40,000 911 calls annually, while Fairview operates four long-term care facilities and two transitional care facilities through a unit called Ebenezer.

Fairview was Minnesota’s fourth-largest non-profit group in 2021, according to a Star Tribune analysis, with revenue of approximately $6.43 billion and approximately 31,000 employees. Of the state’s 12 largest nonprofits last year, only Fairview was losing money on operations, a trend that has continued this year. Other health care systems in the area, such as Allina and North Memorial, saw financial conditions worsen in the first half of this year.

In 2018, Fairview entered into a renewed affiliation agreement with the U that significantly increased health care system financial support for the university. Since then, Fairview has experienced three consecutive years of financial losses on operations.

Hereford said the Sanford merger, however, was not driven by the relatively weak financial performance of Fairview, which has closed the old St. Joseph’s Hospital and Bethesda Hospital, both in St. Paul, in recent years.

“We need to be able to drive innovation and promote new approaches,” Hereford said. “And I think what’s really different at this point is that the combination of the two organizations brings such important and complementary core competencies to do just that.”

The organization now known as Sanford Health dates back to the opening of a hospital in Sioux Falls in 1894. It was named after businessman and philanthropist T. Denny Sanford after a $400 million charitable donation in 2007.

With nearly 45,000 employees, Sanford Health’s largest hospitals are located in Sioux Falls, Fargo and Bismarck, N.D. Sanford Bemidji Medical Center is the largest hospital in the Minnesota Health System, where it operates 19 hospitals, 70 clinics and has more than 7,000 employees.

Sanford Health made money from operations last year by posting slightly higher revenue ($7.14 billion) than Fairview. It operates a health insurance plan and an extensive network of aged care facilities.

In recent years, Sanford has failed to complete proposed mergers with Utah-based Intermountain Healthcare and UnityPoint Health, a large Iowa-based healthcare system.

Sanford walked away from the Intermountain merger, Gassen said, after becoming chief executive officer and determining with his board that it would not bring significant improvements to health care. The deal didn’t offer opportunities like those presented by the Fairview merger, he added, mentioning the possibility of partnering with a Sanford initiative to scale up virtual care in rural areas.

The new virtual care center was announced in 2021 as part of a $350 million philanthropic donation from T. Denny Sanford. His total donation to the healthcare system over the years comes to nearly $1.5 billion.

“Probably no one has missed the challenges healthcare has faced in recent years, from a pandemic to some of the economic challenges we’re facing today,” said Gassen. “The opportunity to bring together two organizations that have extremely similar missions…it’s an incredible opportunity that we don’t want to miss.”

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