A mega-merger of Sanford and Fairview health systems is back on the table in Minnesota, a decade after state policy concerns scuttled a similar deal.
Executives from Sanford, based in Sioux Falls, and Fairview, based in Minneapolis, signed non-binding letters of intent on the merger on Tuesday, publicly confirming the negotiations.
If successful, the combined system would be based in Sioux Falls and be one of the largest healthcare providers in the upper Midwest, consisting of 78,000 employees and more than 50 hospitals — including the University of Minnesota Medical Center.
Sanford and Fairview have yet to convince regulators and state lawmakers of the merits of the deal while negotiating details with the U to avoid controversies like those that doomed the merger 10 years ago.
“I would just say that even though it’s only been a decade, 2013 has been an eternity. Other Conditions. Other people. Other Organizations. Other relationships,” said James Hereford, CEO of Fairview. “And I think all of those differences dictate a very different outcome.”
Sanford operates 47 medical centers in the Dakotas and rural western Minnesota, while Fairview’s 10 inpatient hospitals are largely concentrated in the Twin Cities.
Sanford Health would get top billing as a parent company but retain “a very substantial corporate presence” in the Twin Cities, said Bill Gassen, Sanford’s chief executive officer.
National-level hospitals have been hurt by the pandemic, leading to financial and staffing shortages. Gassen said the merger is about more than just survival; it would combine the strengths of two healthcare systems with “similar missions” in a way that would expand equitable access to in-person and virtual care.
“Just to get bigger just won’t work,” Gassen said.
Both Boards of Directors have approved the negotiations. Pending regulatory reviews, both sides aim to close the deal in 2023.
Many issues remain to be resolved, including whether to retain the M Health Fairview brand for many of Fairview’s operations and how to merge the two systems’ employee models. Fairview employs some of its own staff, but also employs unionized hospital nurses and relies on U-Faculty doctors with their own independent group practice.
The Minnesota Nurses Association issued a statement Tuesday demanding “a seat at the table” to ensure negotiations meet the needs of nurses and patients.
The U sold its teaching hospital to Fairview in the 1990s, a landmark deal that closely ties the healthcare system to the university’s health mission.
In 2013, Minnesota’s former attorney general and other opponents opposed the idea of an extragovernmental organization to operate U Hospital, the taxpayer-supported training facility for most of the state’s doctors. State lawmakers then introduced legislation to block the move, and others suggested that the university should adopt Fairview instead.
Minnesota Attorney General Keith Ellison is aware of the recent negotiations and plans to conduct an investigation to ensure the merger complies with charities and nonprofit laws, spokesman John Stiles said. “In addition, we are evaluating possible effects on the competition together with state and federal partners.”
Myron Frans, US senior vice president of finance and operations, said the university was briefed on the new merger talks in August and was involved in “the very early stages of the discussion.”
The U receive millions of dollars in teaching, research and healthcare support from Fairview every year and need to know how the merger would affect this deal as well as Fairview’s bottom line, Frans said.
“What are Fairview and Sanford’s plans to rectify Fairview’s financial challenges?” he said.
Neither Gassen nor Hereford were responsible at the time of the 2013 merger talks. They revived the idea at a health convention dinner in late May.
Founded in 1906, Fairview operates more than 80 clinics, 36 pharmacies and well-known suburban hospitals in Burnsville, Edina, Maplewood and Woodbury. Fairview’s ambulance department responds to more than 40,000 911 calls each year and the Ebenezer unit operates four long-term care and two transitional care facilities.
Fairview was Minnesota’s fourth-largest nonprofit group with approximately $6.43 billion in revenue and 31,000 employees as of 2021, according to a Star Tribune analysis. Of the state’s 12 largest nonprofits last year, only Fairview lost money from operations — a trend that has continued this year. Some competing health systems, such as Allina and North Memorial, have also seen their financial conditions worsen in the first half of this year.
Hereford said the Sanford merger was not due to the relatively weak financial performance of Fairview, which has closed St. Joseph’s Hospital and the old campus of Bethesda Hospital, both in St. Paul, in recent years.
“We need to be able to drive innovation and drive new approaches,” Hereford said. “And I think what’s really different at this point is that the combination of the two organizations brings such important and complementary core competencies to do just that.”
Sanford Health’s origins date back to the opening of a hospital in Sioux Falls in 1894. It was later named after businessman and philanthropist T. Denny Sanford after he received a $400 million charitable donation in 2007.
With nearly 45,000 employees, Sanford’s largest hospitals are in Sioux Falls, as well as Fargo and Bismarck. ND Sanford Bemidji Medical Center is the largest hospital in the Minnesota health care system, where it operates 19 hospitals and 70 clinics and employs more than 7,000 people.
Sanford Health made money from operations last year with slightly more revenue ($7.14 billion) than Fairview. It operates health insurance and a network of senior care facilities.
Sanford recently failed to complete proposed mergers with Utah-based Intermountain Healthcare and Iowa-based UnityPoint Health.
Sanford exited the intermountain merger, Gassen said, after becoming CEO and realizing with his board that doing so would not bring meaningful improvements in healthcare. Fairview offers other opportunities, he added, including collaborating on a Sanford initiative to promote virtual care in rural areas.
A new virtual care center was announced in 2021 as part of a $350 million philanthropic donation from T. Denny Sanford. His total donations to the healthcare system over the years total nearly $1.5 billion.
“Probably no one has missed the challenges that healthcare has faced in recent years, from a pandemic to some of the economic challenges we face today,” Gassen said. “The opportunity to bring together two organizations with very similar missions…is an incredible opportunity that we just don’t want to pass up.”