University of Minnesota intends to buy teaching hospital from Fairview

The University of Minnesota is taking a major step toward buying back its teaching hospital in Minneapolis from Fairview Health Services.

In a voice vote, the U regents decided Friday to approve a nonbinding letter of intent for a deal that would close by the end of 2027, more than 25 years after Fairview purchased the U hospital in a financial bailout.

Boards at Fairview and University of Minnesota Physicians have agreed to the letter as well, but key elements of the proposed transaction — including a purchase price — aren’t yet clear.

The move comes about 15 months after Fairview proposed an ill-fated merger with South Dakota-based Sanford Health. U officials opposed the marriage as it would have transferred control of University of Minnesota Medical Center (UMMC) to an out-of-state entity.

UMMC is the primary teaching venue for the state’s largest and only public medical school. About 70% of physicians practicing in Minnesota trained at the U.

The letter of intent specifies a majority stake would transfer by the end of this year, with the U paying Fairview 51% of the negotiated price at that time. Funds for the health system’s remaining stake would be placed in escrow.

While negotiating the acquisition in the coming months, Fairview and the U will also continue talks on revamping their affiliation agreement for the large M Health Fairview network of hospitals and clinics.

For now, nothing changes with patient care and day-to-day operations. In a joint statement, the U and Fairview said no layoffs are expected and staff transitions are being planned to minimize disruptions.

Ownership would give the U power over operating decisions and control to make needed investments at University of Minnesota Medical Center, said Dr. Jakub Tolar, dean of the U’s medical school.

“We need to be in a position to have authority, and accountability, for running this,” Tolar said in an interview following the vote.

The U’s plan is bound to be scrutinized, considering the potential expense and the university’s difficulty operating the hospital in the 1990s.

Over the past five years, leaders at the U have been learning about how to run a medical center through the Fairview partnership, Tolar said. Interim President Jeffrey Ettinger said the U won’t seek funding from the Legislature for the purchase price during the upcoming legislative session.

“What’s contemplated in the [letter of intent] — if we see acceptable financial information, if we can agree to a price — is that we would then buy 51 percent of the UMMC assets, starting within the next year,” Ettinger said in an interview. “And it will be up to the university then to find the right resource to be able to provide that initial set of funds.”

Dr. Ruth Johnson, a regent and staff physician at Mayo Clinic, applauded the letter of intent and encouraged U leaders to build support for the plan by stressing the public nature of the academic medical center, which includes teaching, patient care and medical research.

Dr. Penny Wheeler, a regent who previously served as CEO of Minneapolis-based Allina Health System, said she supported the agreement as a way for the U to get more data from Fairview to understand what resources would be required to run the hospital.

“I have a lot of big questions that I think remain to be answered,” Wheeler said, “until we get the requisite information.”

At a regents retreat last summer, board chair Janie Mayeron said she understood one reason the U stopped running the medical center in the 1990s is that its performance was poor and others had more expertise. But on Friday, Mayeron told Ettinger and U leaders that she was “absolutely thrilled that you all have gotten us to where we are and [for] what we can look forward to in the future.”

The University of Minnesota Medical Center had more than 750 beds staffed for patients during 2022, making it the state’s second largest inpatient facility behind Mayo Clinic Hospital in Rochester.

The facility consists of four large, distinct operations including, on the U’s East Bank campus, an inpatient hospital for adult patients as well as a clinic and outpatient surgery center. Across the Mississippi River and adjacent to the U’s West Bank campus, the complex includes Masonic Children’s Hospital and an inpatient facility that’s one of the state’s largest sources of inpatient mental health care.

Fairview, which is based in Minneapolis and ranks as Minnesota’s fourth-largest nonprofit group, owns all three hospital facilities and has a financial interest in the clinic and outpatient surgery center. The deal would provide the U with ownership of all four facilities.

“This is a critical first step towards a new and reimagined relationship that will better meet the current and future needs of our patients and our community,” said James Hereford, Fairview’s chief executive officer, in a statement. “Today’s announcement is designed to provide clarity on our collaborative path forward.”

After the first closing, a new board, with membership split between Fairview and the university, would then run the hospital during a three-year transition period. This would lead to a second closing date by the end of 2027, when the remaining funds would transfer and the U would take full control.

The deal must be approved by regulators, a process that could stretch into 2025.

Meanwhile, the U, Fairview and University of Minnesota Physicians will keep negotiating a new definitive affiliation agreement for running M Health Fairview. These negotiations are crucial because large teaching hospitals rely on a network of affiliated hospitals and clinics to refer enough patients for advanced specialty services like those offered at University of Minnesota Medical Center.

The letter of intent sets Sept. 30 as the deadline for this affiliation deal, although there is an extension option.

“While this [letter of intent] is a critical first step, there still remain important conversations around the long-term alignment between our organizations. ... We will continue to operate as M Health Fairview for the foreseeable future,” Fairview and the U said in a letter distributed Friday to employees.

Toward the end of last year, Fairview provided notice that it didn’t want to renew its current agreement with the U, set to expire Dec. 31, 2026. It specifies Fairview’s ongoing financial support for academic health programs at the U, a sum that reached about $100 million last year. The health system says it can no longer afford payments at that level and the university also provided notice that it wanted to negotiate a new deal.

The university floated in January 2023 the idea of building a state-of-the-art replacement hospital on the East Bank campus as part of a five-point plan for its academic health care programs. The letter of intent says the U will pursue analysis, planning and obtaining funding for this new hospital, which officials have said could cost between $1 billion and $2 billion.

Star Tribune staff writer Jeremy Olson contributed to this story.