University of Minnesota leaders voice concerns about Sanford-Fairview merger proposal

The University of Minnesota's president and board chair voiced concerns Friday about a proposed merger between the Sanford and Fairview health systems, describing the combination as driven by financial interests.

At the Board of Regents meeting Friday, U President Joan Gabel cautioned that the deal cannot diminish the university's medical education, research and patient care.

Minneapolis-based Fairview owns the U's teaching hospital in Minneapolis, provides financial support for the university medical school and jointly markets health care services with U doctors under the brand M Health Fairview.

"We will not compromise on our mission in any respect as we work with Fairview on their clear business and financial challenges," Gabel said during the meeting in Minneapolis.

The U, she said, is "committed to working with Fairview as they examine this opportunity." But Fairview officials told the Star Tribune they have asked to meet with Gabel and board chair Ken Powell "more than once and have not received a response."

"We have previously reached out ... and invited them to meet with health system leadership in person to discuss their concerns and share our vision for best-in-class patient care," Fairview said in a Friday statement. "We welcome the opportunity to discuss the future of a health system that includes the University of Minnesota beyond our existing 2026 agreement."

The university has three representatives on the Fairview board, including two who report directly to Gabel, and those leaders have expressed the same concerns and positions in meetings over the past several months, the U said Friday in a statement.

"We have also made it clear to Fairview and Sanford that ... others are working closely with the president and board leadership as the university engages extensively with Fairview and Sanford over their proposal," the U said. "That is the proper forum for evaluating what Fairview and Sanford propose."

Fairview makes annual payments to the U and a related nonprofit for university physicians as part of an affiliation agreement that runs through the end of 2026. The health system has been providing about $70 million or more annually since 2019 to support the academic mission of the U medical school.

The parties are scheduled to decide next year whether to continue the affiliation beyond the current contract term. It dates back to 1997 when Fairview purchased the university hospital, which was struggling financially.

In November, Sioux Falls-based Sanford and Fairview announced merger plans. That step came about a decade after state political concerns blocked a similar deal. The combined system would be based in South Dakota, with about 78,000 employees and more than 50 hospitals, including the University of Minnesota Medical Center.

At Friday's Board of Regents meeting, Gabel said the U medical school trains more than 70% of the state's physicians. The university has emphasized, she said, that any merger must ensure the independence of the U's medical faculty and recognize the importance of teaching and continued financial support.

"The right question is what is best for Minnesota in the years to come, not what might be best for Fairview financially," Powell said during the meeting.

"Minnesota must support a future where its university — and, thereby, Minnesota — governs and controls its destiny," he added. "That does not necessarily preclude affiliation with Sanford, or others, but we ask our public officials to judge any proposed reformation of Fairview by whether it is designed to serve the teaching, research and clinical care needs of this state's only public medical school."

Fairview has posted operating losses every year since 2019. Through the first nine months of this year — a time period when many health systems have struggled financially with rising labor costs — Fairview reported an operating loss of $248.5 million on $4.9 billion of revenue.

But Fairview's chief executive James Hereford told the Star Tribune in November that a merger wasn't required to address the financial challenges.

"As a management team and with our board, we feel confident that there's a path for us, as we stand today," Hereford said in an interview.

Leaders of Sanford and Fairview say the deal would inspire innovation, improve patient care and protect the health systems against mounting economic challenges.

"While we remain proud of our joint clinical enterprise that forms M Health Fairview, the fact remains ... we have a duty to evaluate and consider the long-term sustainability of our state's health care sector and how we can best continue to serve our community and our patients," Fairview said in a statement.

Shortly after the merger announcement, Minnesota Attorney General Keith Ellison announced an investigation into potential anti-competitive aspects of the deal and whether the merger would comply with Minnesota law on use of nonprofit and charitable assets. Ellison has scheduled a series of public hearings that likely will begin in January.

Gov. Tim Walz expressed openness to the proposed merger during a November interview with the Star Tribune. The comments signaled friendlier political waters than the nonprofit health giants encountered when they tried to combine in 2013, although Walz said, "There's a lot of work to be done left in it."