Sanford-Fairview delaying merger until May 31 following pressure from state officials

Sanford and Fairview have agreed to push back the closing on their mega-merger until May 31, a two-month delay that comes after weeks of pressure by lawmakers, the University of Minnesota and Attorney General Keith Ellison.

Ellison's office announced the delay in a statement to the Star Tribune on Friday, saying, "The parties have agreed to extend their self-imposed March 31 deadline." The statement added that Sanford and Fairview have not yet fully complied with repeated requests for information by Ellison.

A Sanford Health spokeswoman confirmed the delay, saying it was voluntary and that health system leaders met with the attorney general's office Friday.

"We continue to work cooperatively ... to ensure they have the information necessary for their review," Sanford and Fairview added in a statement.

The development came hours after the chair of the U's Board of Regents blasted the timeline and process for the proposed merger during a meeting in Minneapolis. Board chair Ken Powell called on Sanford and Fairview to slow down and "disclaim" their stated intent to combine systems "with or without the University of Minnesota."

Fairview has owned the University of Minnesota Medical Center since 1997. About five years ago, physicians at the U and Fairview launched a joint clinical enterprise known as M Health Fairview, which markets health care services across the state.

The university has pushed to slow the merger until questions are answered about its impact on the U's academic medicine mission.

"Having spent my career constructing complex business combinations, I can tell you that if you rush them, you regret it," said Powell, a former chief executive of General Mills, the Golden Valley-based food giant.

"If you try to plow forward without including your key partners, you will fail. Here, if this merger proceeds without recognizing and assuring the centrality of the University to Minnesota's public health, the people who depend on us will be hurt."

In November, South Dakota-based Sanford and Minneapolis-based Fairview Health Services announced the proposed merger to create one of the largest health systems in the Upper Midwest with more than 50 hospitals and some 78,000 employees.

Ellison's office is reviewing how the merger would affect health care competition as well as its compliance with state law on charitable assets.

"Additional time is not enough on its own to ensure that Minnesotans' interests are protected. The parties need to provide full responses to ... requests with sufficient time for review and analysis," the attorney general's office wrote Friday.

The Fairview and Sanford health systems started negotiating a merger plan in May without involving the U, Powell said at a meeting of the Board of Regents. The talks led to a letter of intent that wasn't mentioned to the university until Aug. 7 or shared with U representatives on the Fairview board until the lead-up to an early September meeting, Powell said.

"By that point, it was a fait accompli," he said. "Having no role in creating it and being rebuffed on [a] call for time to evaluate it, all those three university board members could do is vote 'no.' As you know, Fairview went ahead without us."

In a Friday statement to the Star Tribune, Fairview said it had sought numerous meetings with Powell and U President Joan Gabel to discuss the rationale for a merger but had not received "any engagement."

"As meetings with university staff continue, we urge them to move past more than six months of 'who knew what when' and to meaningfully engage on the merits of the transaction and what a potential continued partnership might look like," the health system said.

Powell called on Sanford and Fairview to publicly support a five-point plan announced by the U in January for the university to regain control of its Minneapolis teaching hospital and ultimately build a new medical center on the East Bank campus.

The board chair also said Minnesotans need a better understanding of "why nonprofit Fairview is losing so much money."

Through the third quarter of 2022, the health system was on track for a fourth consecutive year of operating losses.

"Public consideration of any merger should require a turnaround plan that ensures that a nonprofit accountable to the attorney general, and thus to Minnesota, is on a path to good financial health," Powell said. The focus on Fairview's financial condition, he said, "has opened the door to Sanford Health's business interest in expanding into the metropolitan marketplace."

In its statement Friday, Fairview noted that its board includes three representatives from the U and said those officials have reviewed and approved financial plans.

"Chair Powell's comments willfully ignore the shared responsibility for the operational and financial performance of the care system — the same system that his team, faculty and executives are running ... alongside Fairview," the health system said.

Myron Frans, the U's senior vice president for finance and operations, told the regents Friday that it's crucial for the U to regain governanceover the University of Minnesota Medical Center.

The U is developing a funding request to the Legislature related to a transfer back to the university of those hospital assets, he said. The health systems have said a transaction would have to be a sale at fair market value.

The change in control is needed, Frans said, because under the merger "the flagship assets on the campus of the University of Minnesota would be under the ultimate control of this new South Dakota board from the new Sanford entity."

The U also is developing funding requests for renovating the existing hospital, which spans the East Bank and West Bank campuses, as well as building the new hospital, which could take five to 10 years.

"I've been asked by legislators about the cost of our new vision and whether we will be asking the Legislature for support in this session," Frans said. "The answer to the first question is we are still developing our plans. The answer to the second question is a conversation we will bring to this board in the very near future."

The University of Minnesota Medical Center includes four somewhat distinct operations: The main teaching hospital as well as a large outpatient clinic and surgery center on the East Bank campus, as well as Masonic Children's Hospital and an inpatient psychiatry service and ER at the old Fairview Riverside hospital site on the West Bank.

The university has said it wants ownership of all four pieces. However, Frans said Friday that "there's some discussion about what that actually needs to encompass — there's some variability there."