Fairview, Sanford terminate proposed megamerger

The proposed megamerger by Fairview Health Services and South Dakota-based Sanford Health is dead — again.

The announcement Thursday marks the second time in roughly a decade the two health systems have failed to complete a combination that prompted, in its latest incarnation, fierce opposition at the University of Minnesota.

And it leaves unresolved and difficult questions about the future of the U's partnership with Fairview, an affiliation that's been strained significantly over the past year.

"Without support for this transaction from certain stakeholders, we have determined it is in the best interest of Fairview Health Services to discontinue the merger process," Fairview CEO James Hereford said in a statement issued Thursday afternoon.

The U sold its teaching hospital to Fairview in 1997 and balked at the idea of an out-of-state entity owning the University of Minnesota Medical Center in Minneapolis. The merger would have created a health system with some 78,000 employees and more than 50 hospitals.

Sanford Health and Minneapolis-based Fairview first tried to merge in 2013, when the idea was met with significant political opposition. They announced the second attempt in November, specifying a timeline that was later delayed amid an ongoing investigation by Minnesota Attorney General Keith Ellison.

Bill Gassen, the president and CEO of Sanford Health, said in a statement: "Without support for this transaction from certain Minnesota stakeholders, we have determined it is in the best interest of Sanford Health to discontinue the merger process."

Ellison said in a statement that the health systems "made the decision they have determined is right for them."

"While this merger will not be going forward, the health and future of Fairview, the University of Minnesota health care facilities, and all Minnesota health systems are of vital interest to all Minnesotans," he said. "Much work remains to be done."

Sanford Health says its board of trustees met at noon Thursday and made the decision to discontinue the merger process. Gassen then called Hereford at 2 p.m. to notify him, according to a Sanford spokeswoman.

Fairview was the first to make the news public with a release issued at 3:30 p.m. on Thursday.

"As we move forward from here, we remain focused on our public mission to provide high quality, innovative and leading-edge care to patients across Minnesota, and how we can best support access to world-class health care for the entire state," the university said in a statement.

The merger talks prompted Minnesota lawmakers this spring to give the state attorney general more power to scrutinize health care mergers including the Sanford-Fairview deal. The proposal also initiated a discussion at the U about whether its academic medical center would be better served by a restructured relationship with its health care partner.

Fairview and the U have been involved in an affiliation agreement since 1997 that includes financial support from Fairview for the academic medicine mission at the university. The agreement was amended in 2018 to significantly increase funding from Fairview to the U as they jointly launched the M Health Fairview brand.

This agreement continues through 2026, but both parties have an option to signal by year's end if they want to terminate the partnership. Fairview has said the current agreements are not financially sustainable. And the merger talks, that burst into public at times, strained the relationship.

Just this month, a consultant to the U raised questions about Fairview's ongoing financial problems during a Board of Regents meeting.

"The fact is that over the past four or five years, they will have lost almost $1 billion on operations," Cliff Stromberg, an attorney with the Washington, D.C.-based firm Hogan Lovells, said during a recent regents meeting in Victoria. "That is unheard of."

Fairview shot back in a statement to the Star Tribune saying: "Instead of hiring high-priced D.C. legal consultants to advise them, university leadership would be wise to speak directly to those with actual insights and expertise in health care delivery, including the leaders who have responsibility over the health care we provide to our community."

In March, the Star Tribune reported on internal documents in which Fairview's CEO wrote that the U "appears to be profiting significantly" from the patient care collaboration while the health system wasn't seeing financial benefits.

Hereford asked if Fairview could trim annual academic support payments, but the university objected and blasted "the depth of mismanagement by Fairview leadership."

"It is alarming to the University that a highly-compensated CEO of a $6 billion-a-year nonprofit health care enterprise cannot articulate a multi-step plan to bring Fairview back to good health," wrote the medical school dean along with Myron Frans, the U's senior vice president for finance, in a joint Oct. 31 letter to Hereford.

This month at the regents meeting, Frans spoke of the university needing to resolve its "partner problem." He reiterated the U's interest in obtaining from Fairview control for at least some parts of the sprawling university hospital operations.

In January, the university floated the idea of building a replacement hospital on its West Bank campus — one of many ideas not addressed Thursday in a flurry of statements issued by the involved entities.

"While this may not have been the outcome we desired," Hereford said, "we remain committed to our people and to continue advancing the important work we do every day in caring for those in need."

Timeline of merger attempt

November 2022: Fairview and Sanford announce plans for a merger to create a health system with some 78,000 employees and more than 50 hospitals. The University of Minnesota has opposed the merger because it would shift control of the U's teaching hospital — purchased by Fairview in 1997 — out of state.

January: U proposes resuming control of University of Minnesota Medical Center with $950 million in state funding to acquire and initially operate the hospital.

February: Sanford and Fairview agree to delay their merger timeline from March 31 to May 31 as Attorney General Keith Ellison collected information on the merger.

April: Sanford and Fairview again delay merger in order to provide a 90-day notice of the closing after a request by Ellison's office.

July 27: Both sides announce the merger deal is dead.