University of Minnesota says $300 million is 'upper limit' for Fairview hospital

A top University of Minnesota official said $300 million should be considered the "upper limit" for what the U must pay to acquire its teaching hospital campus in Minneapolis and raised the question of whether it would have to pay anything at all.

The price could be less, said Myron Frans, the U's senior vice president for finance and operations, because the university believes the assets at the University of Minnesota Medical Center must be dedicated "in perpetuity" to the U's academic medicine mission.

Fairview Health Services owns the Minneapolis teaching hospital, which includes four somewhat distinct facilities that span the East Bank and West Bank campuses. The U wants control of the medical center because Fairview is planning to merge with South Dakota-based Sanford Health, a transaction that would shift control of the hospital campus to an out-of-state entity.

"The ability to transfer these [assets] outside of the University of Minnesota's academic health mission are limited — if not barred, potentially — which would obviously reduce or eliminate any actual cost in terms of the transfer cost. ... There's a question in our mind about any payment at all given the nature of the assets and their commitment to this public purpose," Frans said during a Friday meeting of the U's Board of Regents.

The comments came as the board voted to seek a total of $950 million in state funding related to the U hospital. The sum includes $300 million for the transfer plus staffing costs and another $650 million for initial operations.

Fairview said in a statement it is "eager to work with the University to identify an independent process to assess and determine a price that is agreeable to both parties."

"We have a duty to our patients to strive toward more affordability and greater value in the care we provide," the health system said. "This means, among other things, being good stewards of the assets we hold."

University of Minnesota Medical Center would be expected to cover its costs in the long run, Frans said, while also generating excess revenue for reinvestments.

Making the operation work will require partnerships with larger health systems in Minnesota, said Ken Powell, the Board of Regents chair. Ideally, he added, the effort would build on M Health Fairview, the network of hospitals and clinics that Fairview and the U have operated jointly since 2018.

"The university continues to meet in good faith with Fairview and Sanford to determine if a redefined affiliation with Sanford can fulfill our land-grant mission," Powell said.

Over the past few months, Sanford and Fairview officials have talked about selling the University of Minnesota Medical Center subject to a fair-market valuation.

Powell said such an approach isn't appropriate for the U hospital given the public nature of the assets. He also suggested it's not how Sanford is approaching its proposed merger with Fairview, noting the health system plans to invest $500 million in strategic capital in the communities where legacy Fairview facilities operate.

"Sanford is hoping to take control of a $6 billion per-year nonprofit by committing only $500 million," Powell said. "That's not fair-market value — that is nonprofit value. Likewise, the ongoing charitable and public purpose of the flagship campus facilities is such that the questions of facility value, which is only part of the Fairview domain, centers on public value, rather than a commercial question of market value. It should not be viewed as another business deal."

Sanford and Fairview announced in November plans for a merger to create one of the largest health systems in the Upper Midwest. It came in the wake of infighting between the U and Fairview about both the proposal as well as the source of Fairview's ongoing financial problems.

This week, Sanford and Fairview formally endorsed the U's five-point plan for the future of academic medicine, which includes obtaining governance control at University of Minnesota Medical Center.