Minnesota lawmakers weigh options for additional review of Fairview-Sanford merger

State lawmakers are weighing options to slow or block the proposed Fairview-Sanford merger, which would create one of the largest health systems in the Midwest and move control of the University of Minnesota Medical Center to an out-of-state organization.

Several legislators at Monday's joint session of House commerce and health committees said they were concerned the merger would reduce choice and competition in rural Minnesota and put the state's primary teaching hospital under the control of Sioux Falls-based Sanford.

Rep. Robert Bierman, DFL-Apple Valley, urged swift action on his bill that would require approval from the state health commissioner before any such merger could proceed. The state needs new tools to assess how such deals could affect health care cost and access for Minnesotans, he said.

"This merger of two of the largest health care organizations will impact the entire state health care system," he said.

While a review by Minnesota Attorney General Keith Ellison is underway, it is limited to violations of charitable or antitrust laws as a result of the merger. Antitrust violations could be difficult to substantiate given that Fairview's hospitals and clinics are concentrated in the Twin Cities and Sanford has become the dominant medical provider in western Minnesota.

Chief executives of Fairview and Sanford testified at the hearing over the benefits of completing a merger this year — creating a unified system of more than 50 hospitals that could survive and even expand in an increasingly challenging health care marketplace. Fairview has sustained financial losses in recent years, resulting in a recent downgrading of its credit rating, and CEO James Hereford said it has to adapt.

Pharmaceutical companies and health plans gained wealth over the pandemic, but hospitals faced financial challenges and staffing shortages that stretched their capacities, Hereford said.

"We cannot fool ourselves to think the status quo is going to be maintained," he said. "We're not going back to pre-COVID conditions. Health care delivery has fundamentally changed."

A similar Fairview-Sanford merger attempt failed a decade ago, largely because of political concerns over the fate of the U medical center. At Monday's hearing, Dr. Jakub Tolar, dean of the U Medical School, said he opposed the latest attempt because its impact on the university hasn't been fully vetted.

Other bills proposed this session would prohibit any transfer of a U hospital to an out-of-state entity, or require Fairview to return assets it received as part of its financial rescue of the U hospital in 1997.

Fairview and the U are operating under an agreement through 2026 that steers millions in clinical revenues to the university for research and academic support. Sanford CEO Bill Gassen said the merger wouldn't disrupt that arrangement and the merged organization will work with the university on its next chapter.

"We stand at the ready to work with the University of Minnesota on whatever that vision looks like," he said.

U leaders earlier this month offered an alternative: Minnesota would take back control of its medical campus and eventually build a new billion-dollar hospital.

"This is a landmark possibility to chart the future of health care and medicine in the state of Minnesota," Tolar said.

Critics of the proposed merger included second-year U medical student Allison Leopold, who testified that the U is top-rated for primary care education while Sanford's medical school doesn't even appear on rankings.

"This merger would taint the educational standing of our school," she said, noting that could hurt recruitment to an institution that provides more than 70% of Minnesota's primary care doctors.

Leopold also had concerns about the U plan, though, calling a billion-dollar hospital wasteful.

Hereford said Sanford has been presented as some kind of foreign bogeyman when its investments in rural hospitals probably saved them and increased local-level access to specialties, such as cancer care, in rural Minnesota.

Fairview has invested in clinical access for low-income and uninsured patients; many of its financial problems deepened in 2017 with its acquisition of the money-losing HealthEast system in the east metro.

Fairview has a $62 million plan to replace the current Bethesda Hospital in St. Paul with a new psychiatric hospital, which it would operate with Tennessee-based Acadia Healthcare. The Legislature required a health commissioner review before that project could proceed, a possible precursor to a review of the merger.

Fairview and Sanford had set a target to complete the merger by the end of March, but several lawmakers said that felt rushed.

Rep. Liz Reyer, DFL-Eagan, sought assurances from Fairview and Sanford that they wouldn't close hospitals, because history suggests mergers result in such closures and higher costs.

"You may not have plans, but I've seen it," she said. "I've seen it in Minnesota. I've seen it in other states."

Rep. Tim O'Driscoll, R-Sartell, warned that Minnesota could be standing in the way of a merger that could preserve health care.

"What happens if Fairview closes its doors?" he asked. "How does that help if there is no other merger partner out there to step forward?"