Fairview and UCare won't merge after all

The proposed merger between Fairview Health Services and UCare is off the table.

In April 2016, officials with Minneapolis-based Fairview, which is one of the state's largest hospital operators, announced a tentative deal to merge with UCare, a Minneapolis-based HMO that is focused on state and federal insurance programs.

The agreement was seen as helping both UCare and Fairview's health insurance divisions handle financial setbacks, but the timeline for completing the deal was delayed at several points last year.

In an interview this week about Fairview's newly proposed merger with St. Paul-based HealthEast, CEO James Hereford said Fairview learned in January that UCare was no longer interested in a merger.

"We've moved on," Hereford said Tuesday.

Wendy Wicks, a UCare spokeswoman, said in a Friday statement: "We decided to continue innovating with Fairview on current and future collaborative products and services without merging the two organizations."

Since January 2016, Fairview has been the sole owner of PreferredOne, a health insurer based in Golden Valley. Previously a partial owner of the insurer, Fairview provided a loan of $18.75 million to help PreferredOne with big growth and financial losses during 2014 in the state's troubled market for individual health insurance policies.

UCare lost roughly half its revenue and eliminated 250 jobs following its failed competitive bid in 2015 on a large state contract in public health insurance programs.

The fates of UCare and PreferredOne, along with health insurer mergers in general, have changed over the past year.

In April 2016, four of the nation's largest health insurers had announced deals to merge into two mega health insurers. Earlier this year, regulators moved to block the proposed Aetna-Humana and Anthem-Cigna mergers.

UCare is returning in a big way to the state public program contract after Minnetonka-based Medica announced it would drop the state contract in May due to financial losses.

In February 2016, PreferredOne announced steps to shore-up its traditional focus selling health insurance to employer groups. Its parent company, meanwhile, has focused on mergers with health care providers.

Fairview and HealthEast this week announced a deal that would create the largest health system in the Twin Cities in terms of annual revenue, with roughly $5 billion for the newly merged system. The merger is scheduled to close by May 31.

In January, Fairview took control of Grand Itasca Clinic & Hospital in Grand Rapids, Minn.

Not all mergers come to pass.

In 2016, Fairview and the University of Minnesota Physicians pulled the plug on merger talks after failing to reach an agreement on governance. Hereford said the proposed HealthEast agreement "is a simpler mechanism" than what Fairview was trying to negotiate with the U.

"We've had a long 20-year relationship with the university," Hereford said, "and that's going to continue."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck