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U of M Pres. Kaler proposes buying Fairview

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State of the University
University of Minnesota President Eric Kaler speaks Thursday, Feb. 28, 2013 at Coffman Memorial Union on the Minneapolis campus. Kaler is proposing that the university "acquires control of" Fairview Health Services.
MPR Photo/Jennifer Simonson

The University of Minnesota is proposing to acquire Fairview Health Services and leaders of both organizations are scheduled to meet Monday to discuss the proposal further. Fairview is also in merger talks with rural health care giant, Sanford Health.

Fairview owns the U of M hospital but university officials are worried about its academic and research missions if Sanford gains control. 

In a letter dated this past January, U of M President Eric Kaler proposed "a new combination of our organizations in which the Universtiy acquires control of, and commits to enhance the historic mission of, Fairview in our state."

Fairview's interim CEO Chuck Mooty says talks are still exploratory.

"This is still education and knowledge based and understanding for everyone as we go through this process," Mooty said.

Mooty said Fairview won't join with Sanford if the university opposes the merger. The attorney general is also holding a public hearing on Sunday about the potential ramifications of a merger between Sanford and Fairview. No final decisions will be made at the meeting, Mooty said, but it will be one in a series of discussions this month.

"We've had teams from the university, teams from Sanford, and teams from Fairview developing synergy exercises to determine whether fits and benefits can be generated by the combination and or partnering that could occur," Mooty said.

The proposal to acquire Fairview Health System is a bit surprising, given the two institutions' history.

The university was forced to get out of the hospital business back in 1997 when managed care cost controls were causing financial pain for many academic hospitals. Fairview acquired the university's teaching hospital that year. Now the university is proposing to undo that and get back into the hospital business in an even bigger way than it was originally. 

The move also comes at a time of major transition in the health care sector with many key provisions of the Patient Protection and Affordable Care Act set to take effect next year.  The federal health care overhaul is projected to provide coverage to an additional 300,000 Minnesotans who currently lack insurance, and 32 million nationwide. If those projections pan out, the law will lighten the financial burden of uncompensated care and could make hospital economics more forgiving. 

But health care systems will also be under financial pressure to improve quality and reduce health care spending, so the law is not a bonanza for the industry. 

Kaler's proposal also came as the ambitious and growing Sanford Health was considered likely to seek entry into the Twin Cities market, with Fairview a likely acquisition target. 

Fairview operates 10 hospitals in the Twin Cities metro, including the University of Minnesota.  Fairview has been trying to rebuild its reputation after a public relations nightmare last year which led to the ouster of its CEO.  Fairview and its former debt collector Accretive Health attracted national attention after news that an Accretive employee left a laptop with 23,000 patient names in a rental car and it was stolen.  That sparked a larger investigation, which culminated in a state lawsuit against Accretive that the company settled for $2.5 million. Accretive is barred from conducting business in Minnesota for six years. Fairview cooperated with the attorney general in the case and escaped unscathed legally, but it's still without a permanent CEO.

Sanford Health may not be well known in the metro, but it is in the Dakotas. It's North Dakota's largest employer and operates clinics in eight states.  Sanford Bemidji is its largest clinic in Minnesota.  Its namesake and primary benefactor may be familiar to Twin Cities residents.  T. Denny Sanford grew up in St. Paul, is a University of Minnesota alumnus and founder of First Premier Bank. He once told Forbes magazine he wanted to give away his millions and "die broke."  Six years ago, he gave a $400 million gift to the South Dakota Valley Hospitals and Health System, which was renamed Sanford Health.   Sanford has grown to 24 hospitals, 115 clinics, and 18 nursing homes and assisted living centers.