Sanford Health, Fairview Health Services call off proposed merger

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Sanford Health and Fairview Health Services have dropped their plans to merge, marking the second failed combination attempt between the nonprofit health systems over the last decade.

Health system executives said Thursday in news releases that they couldn’t continue the merger process without the support from certain stakeholders.

“The significant benefits we identified for a combined system with Fairview Health Services compelled us to exhaust all potential pathways to completing our proposed merger,” Bill Gassen, Sanford president and CEO, said in one of the releases. “However, without support for this transaction from certain Minnesota stakeholders, we have determined it is in the best interest of Sanford Health to discontinue the merger process.”

The Sanford board made the decision to scrap the proposed merger at noon Thursday, a Sanford spokesperson said. Gassen called Fairview President and CEO James Hereford at 2 p.m. Central time to notify him of the decision, the spokesperson said.

“While we wish the outcome were different, we know that the best thing for our patients, our people and the communities we serve is to continue our focus on delivering world class care, now and into the future,” Hereford said in the release.

Minnesota Attorney General Keith Ellison (D), who had asked the health systems to delay closing the proposed merger amid concerns about the future of the University of Minnesota Medical Center and related operations, said in a news release that “Fairview and Sanford have made the decision they have determined is right for them.”

He referenced the attorney general’s office’s ongoing investigation that reviewed more than 300,000 pages of documents and more than 6,000 public comments to evaluate the proposed merger’s compliance with state and federal laws and whether it was in the public interest.

“While this merger will not be going forward, the health and future of Fairview, the University of Minnesota healthcare facilities, and all Minnesota health systems are of vital interest to all Minnesotans. Much work remains to be done,” Ellison said in the statement.

Sioux Falls, South Dakota-based Sanford, which operates 47 hospitals and medical centers predominantly in the Dakotas and Minnesota, would have bolstered its regional presence by expanding into Minnesota’s Twin Cities. Minneapolis-based Fairview, which operates 11 hospitals in Minnesota including the University of Minnesota Medical Center, would have joined one of the nation’s largest rural health systems in Sanford, which also has a health plan covering 220,000 individuals.

Sanford and Fairview announced they had signed a letter of intent to merge in November, pursuing a combined health system with more than $14 billion in revenue. The health systems had planned to close the proposed transaction by March, but it was delayed amid opposition from the University of Minnesota and Ellison, who were wary of an out-of-state entity controlling university facilities. Sanford and Fairview had also planned to merge in 2013, but similarly, the proposed combination was scuttled as then-Minnesota Attorney General Lori Swanson (D) argued that it wasn’t in the best interest of consumers in the North Star State.

In response to the latest combination attempt, Minnesota lawmakers wrote a bill designed to scrutinize the proposed transaction. The legislation, which Gov. Tim Walz (D) signed in May and became effective immediately, stipulated that University of Minnesota healthcare facilities may not be controlled or owned by a for-profit or out-of-state entity unless the attorney general determines it is in the public interest. The law also gives Ellison the authority to rebuff any deal that would substantially limit competition or create a monopoly and increases the reporting requirements of any potential merger-related effects.

The failed merger attempt was one of many recent proposals to form regional mega-systems that span multiple states. While federal antitrust agencies have been wary to challenge proposed combinations that have minimal market overlap, state authorities have become increasingly critical of out-of-market health systems controlling their local healthcare facilities. Several states, including Minnesota, Illinois and Oregon, have passed bills that look to bolster oversight of healthcare mergers and acquisitions. 

While the data on the effects of cross-market mergers are limited, early results show that hospitals in separate service areas may be able to negotiate higher rates with insurers due to a common customer base—often large employers demanding insurance coverage for their employees in different regions. Reimbursement rate increases typically increase prices patients pay for services, boost health plan premiums and stifle wages as employers spend more money on healthcare coverage. 

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