University of Minnesota sues Minneapolis-based UCare over control of the HMO

The University of Minnesota is suing UCare, claiming the nonprofit health insurer's proposal to expand its board of directors would lessen the U's historic influence at the health plan.

In a Nov. 1 lawsuit, the U says adding board seats to the Minneapolis-based health plan would cause the university-appointed board members to lose the majority. The U-appointed directors might then be left out of key decisions, the university argues, such as charter changes that could terminate the U's right to receive UCare's net assets in the event of a dissolution.

UCare says the lawsuit is speculative and wrongly suggests the university was meant to always have the right to appoint a majority of directors at the HMO. The U has provided no evidence that it would be harmed by the changes being considered, UCare says. Additionally, the health insurer argues, the lawsuit is effectively asking the court to re-write company bylaws to give the U more control — a move the board rejected in 2021.

"Unfortunately, the University of Minnesota chose to intervene in discussions of UCare's independent board by filing a lawsuit aimed at trying to control UCare and targeting its reserves," the HMO said in a statement to the Star Tribune. "Our team is confident that we will prevail in court because UCare's legal governance documents clearly give the board the sole authority to make those changes."

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

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

Launched in the 1980s by the U's Department of Family Medicine, the health plan is led by a 15-person board of directors, eight of whom have some affiliation with the University of Minnesota.

As part of its lawsuit, the university asked for a temporary restraining order and injunction to block UCare from amending its charter documents. Hennepin County District Court Judge Laurie Miller is scheduled to hear the request on Nov. 15.

"The steps UCare intends to take, including eliminating the university's majority on the UCare board and undermining the university's role in UCare, would pave the way for business decisions that go against the best interests of not only the U of M, but Minnesotans," the U said in a statement to the Star Tribune.

In its lawsuit, the university cited three examples showing how it has used the current board structure to oppose certain changes being considered at UCare. The examples largely are redacted, but context suggests the U opposed a 2017 plan for UCare to merge with Fairview Health Services as well as UCare's attempt this year to a win a managed care contract in Iowa's Medicaid program.

The academic institution alleges in its lawsuit that UCare has "intimidated" U-appointed board members and threatened they could face criminal and civil penalties for taking into account the U's interests. UCare called the claims "baseless assertions."

"The university created UCare more than 30 years ago to improve access to quality health care for underserved Minnesotans and to train physicians to provide care to patients in an HMO environment," the U said in its statement.

"With this mission in mind, UCare's reserves were built in large part by Minnesota Medicaid dollars. UCare's intended actions not only significantly diminish the university's long-standing role in UCare, they jeopardize UCare's mission to use the assets it derived from Minnesota taxpayers for the benefit of Minnesotans."

The office of Minnesota Attorney General Keith Ellison said it is monitoring the situation and will attend next week's hearing. "Recognizing that the public interest would be best served if the parties could avoid a costly public dispute, the State vigorously advocated for the parties to resolve the dispute outside of litigation," wrote the AG's office in a filing submitted Friday in the case.

Beyond managing care for Medicaid enrollees, UCare also operates a large Medicare Advantage health plan and sells coverage to individuals through the state's MNsure health exchange. The nonprofit HMO also does some insurance business in Wisconsin.

In a court filing, UCare acknowledged its historical connection to family medicine doctors at the U, but cited a 1999 memorandum of understanding where University Affiliated Physicians-University of Minnesota, P.A., relinquished its "member interest" in UCare — a term that's synonymous with ownership among nonprofits.

"Under UCare's bylaws, the board acts by a majority vote of the directors, except to amend the bylaws, which require a two-thirds vote of the directors," UCare said in a legal brief supplied by the insurer. "At least three university-affiliated directors would have to vote in favor of any bylaw amendment for it to pass."

In the legal brief, UCare said the university asked the HMO last year to amend its bylaws and articles of incorporation to require prior written consent from a top official at the U for certain governance changes. But the health plan did not agree.

"Having failed in persuading UCare to change its governing documents, plaintiff now asks the court to re-write them," the health plan said in the legal brief.