University of Minnesota, Essentia Health propose $1B partnership on academic medicine

The University of Minnesota and Duluth-based Essentia Health announced ambitious plans and raised plenty of questions Friday by proposing to create an “all-Minnesota health system solution” that would include a $1 billion joint investment over five years.

The U and Essentia, which operates hospitals and clinics in northern Minnesota, described what they called a “proposed framework” for creating a new nonprofit entity to provide patient care while supporting the university’s academic health training programs, which produce a large share of the state’s health care workforce.

This new entity would reinvest in medical facilities on the university campus in Minneapolis, the U says, while bolstering health care in rural communities and access to specialty care.

The proposal left a number of open questions, such as exactly how patients might eventually be affected. Currently, the concept is not even grounded in a formal agreement between the U and Essentia.

In an interview Friday afternoon, University President Dr. Rebecca Cunningham said the new nonprofit would be led by Dr. David Herman, the chief executive at Essentia Health. This new nonprofit somehow would align or combine the operations of Essentia and the University of Minnesota with the hospitals and clinics at Minneapolis-based Fairview Health Services, a larger system that owns University of Minnesota Medical Center in Minneapolis.

“I have begun to talk with Fairview about this proposed path forward, which would include an alignment of those resources across our systems,” Cunningham said.

For nearly a year now, the U and Fairview have been negotiating a deal for the university to acquire its teaching hospital campus, which Fairview purchased in 1997 in a financial bail out.

Cunningham stopped short of saying the acquisition idea is dead, but said she’s focused instead on the new proposal, believing it would bring structural advantages over the current U-Fairview affiliation.

“We’re not talking about doing this without the Fairview system,” she said.

In a statement Friday, Fairview officials said they were only just learning about the idea, which they described as a “sudden change” in the U’s previously stated desire to buy the U’s teaching hospital.

“Fairview became aware of the University’s discussions with Essentia within the last 24 hours and has not been provided with details on the concept,” the health system said in a statement. “Fairview is an independent, nonprofit organization and decisions about our future will remain under the purview of our Board of Directors and leadership team.”

The U and Fairview have an affiliation agreement to jointly operate University of Minnesota Medical Center and the larger M Health Fairview health system; Fairview owns most of the hospitals and clinics. The U and Fairview have been re-negotiating their affiliation agreement, which is set to expire at the end of 2026.

Currently, Fairview provides tens of millions of dollars each year in financial support for the U’s programs for training health care professionals.

In 2022, Essentia Health was the state’s eighth-largest nonprofit organization by revenue. It owns or operates 14 hospitals, 78 clinics and 24 retail pharmacies plus a number of long-term care and assisted living facilities, mostly in Minnesota, and employs about 15,500 people.

The Duluth-based health system primarily operates in northern Minnesota, whereas Fairview — the state’s fourth-largest nonprofit — runs a number of hospitals and clinics in the Twin Cities metro.

Herman said the new nonprofit would have the chance to close disparities in access to health care, where rural residents have more health problems and fewer options in Minnesota. It also addresses problems highlighted by a state task force during the fall of 2023, he said, about future funding for the U’s academic health training programs, particularly the medical school.

Fairview has said the annual financial support it provides each year is not sustainable.

“If we want something different, we have to do something different,” Herman said in an interview.

Under the proposed model, Essentia Health would commit assets to the new nonprofit. The idea going forward is that the U and health system partners would share aligned incentives within the new entity, rather than negotiate arm’s length transactions, to generate financial support for academic health training and care, Herman said.

“The structure wasn’t right,” he said of the existing affiliation agreement. “You have two organizations that, basically, their relationship is based upon transactions and negotiations rather than a single operating model. ... You could never achieve what you could achieve through a model where you’re all together.”

Herman noted nearly 70% of all Minnesota physicians were trained at the U, a key reason Essentia is exploring the proposal.

Public discussion about the future of academic health at U began in earnest after the collapse in July 2023 of Fairview’s proposal to merge with South Dakota-based Sanford Health, which the university opposed. There have been tensions for decades between Fairview and the U, some of which surfaced during deliberations over the Sanford deal.

Throughout, there’s been consideration about the structure of partnerships the university should have with a health system or multiple health systems, but no clear signal that one approach would solve all problems. Friday’s announcement provided a clear indication about the vision from Cunningham, who took over as president just last summer.

She and Herman suggested their proposal would create a health system similar in structure to the University of Michigan, where Cunningham previously worked, and the University of Washington.

These partnerships are critical for tapping clinical revenue to provide financial support for training programs.

On Friday, the U and Essentia said the proposed framework envisions a wide range of patient benefits. It would create new opportunities for training health care professionals, the university says, while furthering long-term goals to decrease clinical costs, develop new models for providing care and expand health care technology for use across a larger health system.

As for the investment of $1 billion referenced in Friday’s announcement, Cunningham said the U would not be turning to taxpayers for the funding. Sources could range instead from the U and its clinical partners to philanthropy and bond debt.

She did not say exactly how the funds might be spent, saying U officials wanted to be transparent about the proposal as it currently stands even though not all details have been worked out.

“This is the only path forward that I see creating a thriving, brilliant, accelerating medical school that can advance even higher than it is and do even more for the state,” Cunningham said. She argued all state residents should be interested in the plan because high-quality training at the U is “how you’re going to get your doctors and your nurses and your dentists and care providers all across the state.”

Critics have questioned the idea of the U reacquiring its teaching hospital, since the university couldn’t run it without losing money back in the 1990s. One advantage of the proposed structure, Cunningham and Herman said, is that the new nonprofit would rely on the experience of the existing Essentia team.

“There’s a lot of things the University of Minnesota is very, very good at, and has tremendous experience in,” Herman said. “They haven’t had that experience in running a health care system.”