After Sanford merger collapse, University of Minnesota renews focus on owning its teaching hospital

University of Minnesota leaders are renewing calls for ownership of the U's teaching hospital in Minneapolis, the centerpiece of a five-point plan first announced in January that includes future construction of a large replacement hospital.

Speaking at a Board of Regents meeting Friday, officials didn't say what sort of state money might be required for the U to regain ownership of University of Minnesota Medical Center from Fairview Health Services, which purchased the facility in a financial bailout in 1997.

Minneapolis-based Fairview said in a statement to the Star Tribune that it's open to discussing options for a sale at fair market value. University officials, however, repeatedly have suggested a transfer could happen without the U buying hospital facilities that are now located on both sides of the Mississippi River.

Concern over the fate of the U medical center was at the heart of opposition to Fairview's proposed merger with South Dakota-based Sanford Health, which the nonprofits called off in July.

"What the withdrawn Sanford merger showed us is that we almost lost ownership and control over our academic teaching hospitals to an out-of-state entity," Interim President Jeff Ettinger said during the Regents meeting.

"We believe that the University must control care delivery and direction of the academic mission on our own campus. ... The governor's task force is a wonderful opportunity for the community to engage and strategize about the next steps of academic health training and financing."

Last month, Gov. Tim Walz called for a task force to advise the state on the future of the academic health mission at the U, including care delivery, research and training for caregivers.

The governor's executive order did not explicitly mention Fairview's ownership of University of Minnesota Medical Center or a long-term affiliation agreement whereby Fairview provides significant funding for academic medicine at the U.

But four areas of focus for the task force clearly intersect with the University's partnership with Fairview, said Myron Frans, the U's senior vice president of finance and operations.

The sprawling medical center includes the main teaching hospital and a large outpatient clinic on the U's East Bank campus. Adjacent to the West Bank campus, medical center facilities include a children's hospital and a building primarily for inpatient mental health care.

"The best way to ensure fulfillment of the University's public mission for the future is for these facilities to be owned and governed by the University of Minnesota," Frans told the Regents.

Fairview owns three of the four facilities — the East Bank hospital and both buildings near the West Bank campus.

"Since acquiring the East Bank hospital in 1997, Fairview has invested $911 million of capital in our facilities on the University campus in addition to millions in academic support for the University's teaching mission," Fairview said in a statement. "We remain open to discussing options for the University to purchase the medical center and other Fairview assets on its campus and campus-adjacent at fair market value."

The U responded Friday evening by saying: "Discussion of fair-market value confuses the issues when we are talking about assets that have received significant investment from Minnesota's public academic health system and that are operated to benefit the public."

The Sanford merger proposal strained relations between Fairview and the U and highlighted conflict over whether the University has been the source of financial problems for Fairview.

The tone from U officials on Friday, however, was more positive as Ettinger said talks with Fairview scheduled for next week are "aimed at re-engaging with our clinical partner."

Fairview and the U face an end-of-year deadline to decide if they want their long-term affiliation to continue after 2026. The affiliation most recently was renegotiated through a 2018 deal that created the M Health Fairview brand, where the University and health system jointly market medical services.

"In many, many ways this worked — this was a success," Dr. Jakub Tolar, the dean of the U Medical School, told the Regents on Friday. "We have not done this alone, and our Fairview partners have been with us at every single point."

Fairview's financial results have improved in recent quarters after four years of operating losses.

In the years leading up to the 2018 reworking of their affiliation agreement, Fairview was providing between $4 million and $8.75 million per year in financial support to the U for the academic health mission. Fairview's annual payments jumped to about $78 million in 2019, steadily rising to about $93 million last year.

There's disagreement on how much additional financial burden came with the increased payments, since the U argues some fees paid by Fairview came with extra revenue for the health system.

The bottom line, the health system argues, is that the current affiliation agreement is not sustainable.

"Fairview hopes to maintain a clinical partnership with the University. ... However, current agreements, some now approaching 30 years old, do not reflect current realities and are not economically viable in today's health care market."