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Minnesota Hospital Merger Talks Derail

Minneapolis-based Fairview Health Services says it will focus on finding a permanent CEO now that rural health care giant Sanford announced Wednesday that it felt “unwelcome” and was cutting off merger discussions with Fairview.

Fairview is one of Minnesota’s largest health systems and owns the University of Minnesota’s main teaching hospital. Sanford runs clinics in eight states, including Minnesota.  A merger with Fairview, however, would have been its first foray into a major metropolitan area.

In the past several days, a potential deal with Sanford appeared wobbly after an onslaught of public criticism. On Sunday, Attorney General Lori Swanson grilled  Sanford executives in a public hearing, and on Monday, two lawmakers from the Democratic Farm Labor Party (DFL) introduced legislation to delay — if not stop — the Sanford deal.

Swanson and University of Minnesota officials had raised concerns that a takeover by Sanford would drain assets out of Minnesota for the company’s operations elsewhere.

Sanford’s CEO apparently had enough.  Kelby Krabbenhoft — Sanford’s CEO — wrote in a letter to Fairview and Attorney General Swanson that Sanford would only go “where we are invited.” He said Sanford would re-engage if Fairview and the university work out their relationship and secure a “positive understanding” from Swanson.

When the negotiations between Sanford and Fairview were first announced, university officials also said they would explore an acquisition of Fairview. After the Sanford deal fell through Wednesday, Fairview moved away from a possible merger with the University of Minnesota.

Steve Parente, who heads Health Finance at the Carlson School of Management at the University of Minnesota, says the Sanford response signaled it didn’t want to go in for a firefight.

“They wanted to have this be essentially a communion of equals and didn’t seem like that type of language was sort of forthcoming and realized it would be a bigger slog and walked away,” he said.

The Minnesota attorney general released a statement that said charitable institutions exist because of public support and the public has a stake in their outcome.

“We understand why [Sanford Health] would choose to step back at this time, but the news comes as a disappointment,” Chuck Mooty, Fairview interim CEO, said in a statement.   “Our initial findings about a Fairview/Sanford partnership were positive and the Fairview Board was committed to fully understanding its potential benefit to our patients and communities.”

Fairview’s statement also said it was not the time to discuss any proposal that involves the University acquiring Fairview.

In a letter to top U of M leaders, President Eric Kaler called the news “disappointing.”

Linda Cohen, chairwoman of the University’s Board of Regents, says news of Fairview’s decision was a surprise to her and that the acquisition of Fairview could have been good for both sides.

“My belief is the same as President Kaler’s: The present situation seems not sustainable, and it’s very disappointing news.”

She says the university should continue to try to have a closer management relationship with Fairview, as well as work on a planned new ambulatory care center. Cohen says she hopes Fairview just wants to pull back and think, and that talks of an acquisition aren’t over forever.

The University of Minnesota sold the U of M hospitals to Fairview in 1997 at a time when many universities were spinning off their hospitals to other organizations, according to Diane Viacava, an analyst at Moody’s, which provides credit ratings and research.  The idea that the University of Minnesota might be interested in getting more control over its flagship hospitals would be part of an emerging trend that’s been happening in other states, she said.

“What we have seen across the country, is that universities are beginning to look, there are some that have brought the hospitals back into their structure or have restructured themselves to have a closer relationship with the university,” Viacava said.

Meanwhile, state Rep. Joe Atkins, a Democrat from Inver Grove Heights, says he still intends to hold hearings on his bill, which would have blocked Sanford from ultimately controlling the University of Minnesota hospitals.  He said the issue was never about Sanford but about any out-of-state entity that could take control of the University of Minnesota Medical Center.

“The bottom line is that the University of Minnesota Hospitals ought to always be controlled by folks based right here in Minnesota,” said Atkins. “I still intend to hold hearings on my legislation in the House Commerce Committee and still request that the Fairview CEO attend.”

With reporting from Alex Friedrich.

This story is part of a collaboration that includes Minnesota Public Radio, NPR and Kaiser Health News.