University of Minnesota wins temporary block on UCare attempt to add board members

A Hennepin County judge has temporarily blocked UCare from trying to expand membership on its board of directors — a legal victory for the University of Minnesota, which appoints a board majority at the Minneapolis-based health plan.

The university filed a lawsuit Nov. 1 that said UCare's push to add board members threatened to marginalize the U's role in key decisions and terminate its right to receive assets in the event of a dissolution.

The Department of Family Medicine at the U created UCare in 1984 and the university appoints eight of 15 board members.

"The court finds that the decades-long status quo in this case will best be preserved through injunctive relief temporarily preventing UCare from moving forward with a vote to eliminate the university's majority of appointments on UCare's board," Hennepin County Judge Laurie Miller wrote in a ruling released Tuesday.

Miller added, "Allowing UCare to end the university's board majority would represent a major alteration in the status quo of the parties' 38-year-old pre-existing relationship."

The ruling is "a significant early decision" in the ongoing litigation, the U said in a statement.

"This decision will allow the university to address the obligations of UCare to Minnesota and the University of Minnesota as UCare continues its U-founded mission of serving Minnesotans — especially patients in underserved populations in need of Medicaid and other insurance protection," the university statement said.

UCare called it a "first step in a legal process" and said it was considering its options.

"UCare disputes the university's positions," the insurer said in a statement. "A full review of the facts, which will occur in the next phases of litigation, will support UCare's position."

The case highlights divergent views on the University of Minnesota's role at the nonprofit health insurer it created.

Miller wrote that she found "support in the record for the university's contention that the 'U' in UCare refers to the university." She added: "UCare's evidence that its recent branding focuses on the 'you' in 'UCare' does not negate this historical relationship, but instead exemplifies UCare's desire to move away from its prior alignment with the university."

UCare was the fifth-largest nonprofit group in Minnesota last year and third-largest nonprofit health insurer. It had operating income of about $20 million on some $5 billion in revenue, according to a Star Tribune review of financial statements.

It is a large managed-care organization for lower-income residents in the state's Medicaid program. UCare also operates a Medicare Advantage health plan for seniors while selling coverage to individuals through the MNsure health exchange.

In her ruling, Miller noted that the ownership structure for UCare has evolved over the years. The university ceded its status as UCare's sole member, the judge wrote, subject to commitments in a 1997 memorandum of understanding between the parties.

UCare argues that it did not undertake any enforceable obligations to the university in that memorandum. Yet, Miller wrote she was "not persuaded" that the document is "an unenforceable agreement to agree, and that it confers no rights whatsoever upon the university with respect to UCare's corporate governance."

In its lawsuit, the university sought to illustrate its historical influence at the health plan by pointing to an attempted merger in 2017. UCare sought approval from the university before proceeding, the U claimed, and offered a significant sum for the university's stake.

UCare disputed the U's characterization of the matter.

Neither the lawsuit nor the judge's order identifies the merger partner, but UCare was talking publicly at the time about a combination with Minneapolis-based Fairview Health Services.

This year, UCare scheduled a board meeting for Oct. 12 to vote on whether to amend UCare's bylaws, thereby eliminating the U's majority of appointed board members, the judge wrote.

UCare did not seek the university's approval for the change, Miller wrote, saying the health plan instead took steps to prevent current board members affiliated with the U from discussing it with the university.

The health plan advised those board members, she wrote, "that they may be subject to civil and criminal penalties if they were to discuss information UCare deems confidential with other university officials or with the court."

Those actions "may also be viewed as a breach of the parties' agreement in the [memorandum of understanding] to regularly share information on a confidential basis between UCare and the university," Miller wrote.