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Patrick Springer, Published April 08 2013

Sanford-Fairview merger faces an uncertain future

FARGO – The possible merger of Sanford Health and Fairview Health Services faces an uncertain path forward after a rocky meeting Sunday exploring the union and a competing offer by the University of Minnesota.

The possibility that an out-of-state entity could end up with the university medical center – regarded as one of Minnesota’s most important public assets – has sparked criticism and scrutiny.

Lori Swanson, Minnesota attorney general, has been the most vocal official critic, but others have now joined the chorus.

In a hearing Sunday to take testimony from executives of the two health systems, she questioned the appropriateness of nonprofit Sanford’s millions of dollars of financial support for athletics and naming rights for centers.

Those investments are appropriate, Sanford executives have maintained, because they support its mission to promote health and fitness.

The University of Minnesota has pledged not to accept any charitable gifts from Sanford while the possible merger is pending with Fairview.

In another development, two Twin Cities legislators on Monday introduced a bill that would prohibit out-of-state entities from taking control of Minnesota’s hospitals.

The bill has its first hearing April 17 before the Minnesota House Commerce Committee, four days before the next hearing investigating a possible Sanford-Fairview merger on April 21.

Meanwhile, the prospect of a Sanford-Fairview union was further complicated when it was learned last week that the University of Minnesota has proposed a closer relationship with Fairview, which took over the university medical center in 1997.

That offer, made in a letter dated Jan. 28 by Eric Kaler, the University of Minnesota president, was an invitation for mutual “due diligence” information exchanges and business planning to unfold over the next three months.

A spokesman for the university’s academic health care program said there is no progress to report on those discussions.

“I think there’s a lot of due diligence going on,” said Brian Lucas of the University of Minnesota, adding that there is no timetable for reaching a decision.

“I just think there’s a lot that has to be figured out,” Lucas added.

A lawyer for the University of Minnesota said the offer was made in response to Sanford’s interest in a possible merger.

Swanson said investigators on her staff were “hard-pressed to find anyone at the university who wants” to merge with Sanford, according to the Star Tribune’s report of Sunday’s hearing.

A spokeswoman for the Minnesota Hospital Association, which is neutral about a Sanford-Fairview merger, expressed disappointment in the way Sunday’s hearing was handled. The association was not allowed to participate.

“We did ask to testify, and we had hoped to be able to provide some context about the health care environment,” active with consolidations and integration, said Wendy Burt, the hospital association’s vice president for communications.

“I think it’s fair to say we were a little concerned that there’s a fast rush to judgment without having a concrete proposal on the table,” Burt added.

Meanwhile, Sanford executives had little more to say Monday pending the outcome of a possible tighter integration between Fairview and the University of Minnesota.

“We expect that discussions over the next week will provide clarity in terms of next steps and our role in any future hearings,” said Cindy Morrison, Sanford’s executive vice president of marketing.

Fairview representatives offered no public comment Monday.

During their testimony Sunday, however, both representatives of Sanford and Fairview stressed the economic efficiencies and savings that could result from a merger.

Through a shared electronic medical records system and bulk purchases of supplies, the two health systems could see savings of $40 million to $60 million a year, according to figures from Sanford.

Those savings would be unavailable to health consumers if the possible merger is blocked, leaders of the health systems said.

Sanford and Fairview executives have been swapping a “synergy book,” examining the business benefits of a merger.

Both Kelby Krabbenhoft, Sanford’s chief executive officer, and Chuck Mooty, Fairview’s chairman and interim CEO, both have stressed that their talks, which began last summer, still are in the early, preliminary stages.

In written comments presented at Sunday’s hearing, Krabbenhoft said the timeline for “evaluation, discussion, and negotiation” will not enter “mature stages” until December at the earliest, with June 2014 a more likely date.

Also, Krabbenhoft noted that a quarter of Sanford’s board is comprised of Minnesota directors. If Fairview were to merge, Minnesota likely would have a majority on the board, he said.

In an earlier statement, Krabbenhoft said a merged Sanford and Fairview could be chartered in Minnesota.

To alleviate concerns about a “takeover” of the University of Minnesota Medical School, Krabbenhoft said in his statement that neither health system has ever owned, or foresees owning, a state medical school.


Readers can reach Forum reporter Patrick Springer at (701) 241-5522