Sanford, Fairview revive merger talk a decade after last attempt failed

A megamerger of the Sanford and Fairview health systems is back on the table in Minnesota, a decade after state political concerns scuttled a similar deal.

Leaders of Sioux Falls-based Sanford and Minneapolis-based Fairview signed nonbinding letters of intent to merge and publicly acknowledged the negotiations on Tuesday, asserting the deal would inspire innovation, improve patient care and protect them against mounting economic challenges.

If successful, the combined system would be based in Sioux Falls and be one of the largest health care providers in the Upper Midwest, consisting of 78,000 employees and more than 50 hospitals — including the University of Minnesota Medical Center.

Sanford and Fairview still must convince regulators and state lawmakers of the deal's merits while negotiating details with the U to avoid controversies like those that doomed the merger 10 years ago.

"I would just say that 2013, while only a decade ago, is forever ago. Different conditions. Different people. Different organizations. Different relationships," said James Hereford, Fairview's chief executive. "And I think all of those differences dictate a very different outcome."

Sanford operates 47 medical centers in the Dakotas and rural western Minnesota while Fairview's 10 inpatient hospitals are largely concentrated around the Twin Cities.

Sanford Health would get top billing as the parent company, but keep "a very material corporate presence" in the Twin Cities, said Sanford chief executive Bill Gassen.

Hospitals nationally have been hurt by the pandemic, which led to financial and staffing shortfalls. Gassen said the merger is about more than survival; it would combine the strengths of two health care systems with "similar missions" in ways that would expand equitable access to in-person and virtual care.

"To do so just to get bigger will not work, simply put," Gassen said.

Both governing boards have approved negotiations. Pending regulatory reviews, the two sides seek to close the deal in 2023.

Many issues have yet to be resolved, including whether to retain the M Health Fairview brand for many of Fairview's operations and how to marry the two systems' employee models. Fairview hires some of its own staff, but also employs unionized hospital nurses and relies on U faculty doctors with their own independent group practice.

The Minnesota Nurses Association issued a statement Tuesday demanding "a seat at the table" to make sure negotiations consider the needs of nurses and patients.

The U sold its teaching hospital to Fairview in the 1990s, a landmark deal that closely links the health system to the university's health care mission.

Minnesota's former attorney general and other opponents balked in 2013 at the idea of an out-of-state organization running the U hospital, the taxpayer-supported training location for most of the state's doctors. State lawmakers introduced legislation to block the move at the time, and others proposed that the university take over Fairview instead.

Minnesota Attorney General Keith Ellison is aware of the latest negotiations and plans an investigation to make sure the merger complies with laws governing charities and nonprofits, said spokesman John Stiles. "We are also evaluating any possible effects on competition along with state and federal partners."

Myron Frans, the U's senior vice president for finance and operations, said the university was informed of the new merger talks in August and has been involved in "the very beginning stages of the discussion."

The U receives multimillion-dollar support each year from Fairview for teaching, research and health care, and needs to know how the merger would affect that deal along with Fairview's bottom line, Frans said.

"What are the plans of Fairview and Sanford to correct Fairview's financial challenges?" he said.

Neither Gassen nor Hereford was in charge at the time of the 2013 merger talks. They rekindled the idea over dinner during a health care convention at the end of May.

Founded in 1906, Fairview runs more than 80 clinics, 36 pharmacies and prominent suburban hospitals in Burnsville, Edina, Maplewood and Woodbury. Fairview's ambulance division responds to more than 40,000 emergency calls a year and its Ebenezer unit runs four long-term care and two transitional care facilities.

Fairview was Minnesota's fourth-largest nonprofit group in 2021, according to a Star Tribune analysis, with revenue of about $6.43 billion and 31,000 employees. Among the 12 largest nonprofits in the state last year, only Fairview was losing money on operations — a trend that has continued this year. Some competing health systems, such as Allina and North Memorial, have seen financial conditions deteriorate in the first half of this year as well.

Hereford said the Sanford merger was not driven by the relatively weak financial performance at Fairview, which in recent years has closed St. Joseph's Hospital and the old Bethesda Hospital campus, both in St. Paul.

"We need to be able to drive innovation and drive new approaches," Hereford said. "And I think what is truly different at this point is the combination of the two organizations brings such important and complementary core competencies to do just that."

Sanford Health's origin traces to the opening of a hospital in Sioux Falls in 1894. It was later named for businessman and philanthropist T. Denny Sanford after a $400 million charitable gift in 2007.

With nearly 45,000 employees, Sanford's largest hospitals are in Sioux Falls as well as Fargo and Bismarck, N.D. Sanford Bemidji Medical Center is the health system's largest hospital in Minnesota, where it runs 19 hospitals, 70 clinics and has more than 7,000 employees.

Sanford Health made money from operations last year while posting slightly more revenue ($7.14 billion) than Fairview. It runs a health insurance plan as well as a network of senior-care facilities.

Sanford recently failed to complete mergers it proposed with Utah-based Intermountain Healthcare and Iowa-based UnityPoint Health.

Sanford walked away from the Intermountain merger, Gassen said, after he became CEO and determined with his board that it wouldn't drive meaningful health care improvements. Fairview presents more opportunities, he added, including collaboration on a Sanford initiative to boost virtual care in rural areas.

A new virtual care center was announced in 2021 as part of a $350 million philanthropic gift from T. Denny Sanford. His total giving to the health care system over the years comes to nearly $1.5 billion.

"It's probably not lost on anybody the challenges that health care has faced over the last few years, everything from a pandemic to some of the economic challenges that we're facing today," Gassen said. "The opportunity to bring together two organizations that have extremely similar missions ... is an incredible opportunity we just don't want to miss."