Attorney general proposed as gatekeeper of Minnesota health care mergers

Minnesota's attorney general could gain sweeping authority over health care mergers, especially the Fairview-Sanford merger that could result in out-of-state control of the University of Minnesota's teaching hospital.

A proposal gaining momentum in the Legislature would prohibit hospital and clinic mergers that "substantially lessen competition," and empower the attorney general to go to court to block or unwind any transactions that don't benefit Minnesota.

Reduced competition can mean higher costs for everyone, because larger health care systems can command higher prices that result in higher insurance premiums, said Rep. Robert Bierman, DFL-Apple Valley, the lead author of the bill.

"We're on an unsustainable trajectory with health care costs and we all know that," he said. "The question is, what do we do about it? This is one thing we can do to address one segment of it."

Bierman's bill was amended Monday to focus on larger mergers and exempt smaller, rural hospitals and clinics from its reporting requirements.

The bill's most immediate impact would be widening the scope of Attorney General Keith Ellison's review of the Fairview-Sanford merger — beyond whether it simply conforms with state charitable and business laws. Control of U health care facilities by any out-of-state or for-profit entities would be banned unless Ellison determined that it would be in Minnesotans' public interest.

The amended proposal will likely be included in a House health budget bill scheduled for a vote Wednesday. The Senate already approved its version, so lawmakers from both chambers would have to iron out the differences before sending a final version to Gov. Tim Walz.

The merger under consideration would put South Dakota-based Sanford Health in charge of Fairview's network of clinics and 10 mostly Twin Cities hospitals, including the University of Minnesota Medical Center.

Fairview leaders have argued the merger is necessary to compete in the post-COVID health care environment. The Minneapolis-based health system has posted lean finances since its 2017 acquisition of HealthEast, which was intended to increase clinical referrals from across the Twin Cities to the university's medical specialists. Fairview's operating losses increased to more than $300 million last year.

While the impact of out-of-state control is unclear, there is little precedent for a medical provider in one state operating the teaching hospital for a public university in another state. Tennessee-based HCA Healthcare is one exception, operating a teaching hospital in collaboration with the University of Central Florida School of Medicine.

Sanford leaders pledged that a Minnesota-based board would set clinical policies for its health care systems in the state, even if the purse strings were controlled from Sioux Falls. Hospital leaders had hoped to finalize a deal weeks ago, but have been delayed amid the state pushback.

U leaders complained that they were poorly informed when merger plans emerged last year, and have proposed a multimillion-dollar takeback of the university hospital buildings that Fairview acquired in 1997.

Bipartisan concerns have surfaced over the merger — with former Gov. Tim Pawlenty, a Republican, joining with former Gov. Mark Dayton, a Democrat, in opposing any deal that places control of the U medical center outside Minnesota. However, no legislative budget bills have earmarked money to buy back the medical center, even with the state's $17 billion surplus.

Republicans expressed concerns about giving authority to the attorney general, beyond the Sanford deal, that could interfere with other mergers that hospitals might need.

"We have to fully look at, what if the merger doesn't happen?" asked Rep. Duane Quam, R-Byron. "What's going to happen?"

Minnesota has been unique nationally for the preservation of its small, rural hospitals, but 49 were considered financially distressed in 2019 — and one in Springfield, Minn., has since closed. Most have aligned with large Minnesota health systems such as Allina or Mayo, but more than 30 hospitals remain independent.

Sanford already is the largest out-of-state provider in Minnesota, operating regional medical centers in Bemidji and Worthington and nine other hospitals. Chicago-based CHI Health still operates four northern Minnesota hospitals after plans broke down in 2021 to turn them over to Duluth-based Essentia Health.

Bierman said recent changes to the bill were at the request of health care providers, including that mergers only be reported to the attorney general if they involved institutions with $40 million or more in annual revenue. The original threshold was $10 million, but the change would free small hospitals from Ely to Madelia to Sleepy Eye from its requirements.

"It is important to find a balance," Bierman said, "between the providers and the goals of the legislation."