Sanford, Fairview revive merger talk — a decade after last attempt failed

A mega-merger of the Sanford and Fairview health systems is back on the table in Minnesota, a decade after state political concerns scuttled a similar deal.

Leaders of the Sioux Falls-based Sanford and Minneapolis-based Fairview signed non-binding letters of intent to merge and publicly acknowledged the negotiations on Tuesday, asserting the deal would inspire innovation, improve patient care and protect them against their industry’s mounting economic challenges.

If successful, the combined system would be based in Sioux Falls, SD, and would be one of the largest health care 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 still must sell regulators and state lawmakers on the deal’s merits while negotiating details with the U to avoid controversies like those that doomed the merger 10 years ago.

“I would just say that 2013, while only a decade ago, is forever ago. Different conditions. Different people. Different organizations. Different relationships,” said James Hereford, Fairview’s chief executive. “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 hospitals are largely concentrated in the Twin Cities.

Sanford’s chief executive would lead the merged entity from South Dakota, which was a sticking point in 2013. At the time, Minnesota’s attorney general and other opponents decried the idea that the U hospital — the primary, taxpayer-supported training location for most of the state’s doctors — would be run by an out-of-state organization.

Bill Gassen, the chief executive of Sanford Health, told the Star Tribune the new health system would maintain “a very material corporate presence” in the Twin Cities.

Hospitals nationally have been hurt by the COVID-19 pandemic that led to financial and staffing shortfalls. Gassen said the merger is about more than survival; it would combine the strengths of two heath care systems with “similar missions” in ways that would expand equitable access to in-person and virtual care.

“To do so just to get bigger will not work, simply put,” Gassen said.

Both governing boards have approved negotiations. Pending regulatory reviews, the two sides seek to close the deal in 2023.

Sanford Health would get top billing as the parent company of the integrated system.

But many issues have yet to be resolved in negotiations, including whether to retain the M Health Fairview brand for many of Fairview’s health care operations and how to marry the two systems’ employee models. Fairview hires some of its own staff, but also employs unionized hospital nurses and relies on U faculty doctors with their own independent group practice.

The University of Minnesota sold its teaching hospital to Fairview in the 1990s, a landmark deal that closely links the health system to the U’s health care mission.

In 2013, concerns at the U were a key factor in the decision to scrap the Sanford merger. At the time, Minnesota state lawmakers introduced legislation to block control of the U hospital from being transferred out-of-state. Others backed a competing plan for the university to take over Fairview.

Myron Frans, the U’s senior vice president for finance and operations, said the university was informed of the new merger talks in August and has been involved in joint meetings with Fairview and Sanford.

The U needs to know more about what the merger would mean for Fairview’s financial support of teaching, research and health care at the university, Frans said. Another question: how the combination would help correct Fairview’s financial challenges.

“We’re in the very beginning stages of the discussion,” Frans said, “and we need to understand more.”

Neither Gassen nor Hereford were in charge at the time of the 2013 merger talks. They rekindled the idea over dinner during a health care convention at the end of May.

Founded in 1906, Fairview Health Services runs more than 80 primary and specialty clinics, 36 retail and specialty pharmacies and prominent suburban hospitals in Edina, Maplewood and Woodbury. Its ambulance division responds to more than 40,000 emergency calls a year while Fairview runs four long-term care and two transitional care facilities through a unit called Ebenezer.

Fairview was Minnesota’s fourth largest nonprofit group in 2021, according to a Star Tribune analysis, with revenue of about $6.43 billion and some 31,000 employees. Among the 12 largest nonprofits in the state last year, only Fairview was losing money on operations — a trend that has continued this year. Other area health systems, like Allina and North Memorial, have seen financial conditions deteriorate in the first half of this year.

In 2018, Fairview entered a renewed affiliation agreement with the U that significantly increased the health system’s financial support for the university. Since then, Fairview has posted three consecutive years of financial losses on operations.

Hereford said the Sanford merger, however, was not driven by the relatively weak financial performance at Fairview, which in recent years has closed the old St. Joseph’s Hospital and Bethesda Hospital, both in St. Paul.

“We need to be able to drive innovation and drive new approaches,” Hereford said. “And I think what is truly different at this point is the combination of the two organizations brings such important and complementary core competencies to do just that.”

The organization now known as Sanford Health dates to the opening of a hospital in Sioux Falls in 1894. It was named for businessman and philanthropist T. Denny Sanford after a $400 million charitable gift in 2007.

With nearly 45,000 employees, Sanford Health’s largest hospitals are in Sioux Falls as well as Fargo and Bismarck, ND Sanford Bemidji Medical Center is the health system’s largest hospital in Minnesota, where it runs 19 hospitals, 70 clinics and has more than 7,000 employees.

Sanford Health made money from operations last year while posting slightly more revenue ($7.14 billion) than Fairview. It runs a health insurance plan as well as a large network of senior-care facilities.

In recent years, Sanford has failed to complete mergers it proposed with Utah-based Intermountain Healthcare as well as UnityPoint Health, a large health system based in Iowa.

Sanford walked away from the Intermountain merger, Gassen said, after he became CEO and determined with his board that it wouldn’t meaningfully drive health care improvements. The deal did not offer opportunities like those presented by the Fairview merger, he added, mentioning the chance for collaboration on a Sanford initiative to boost virtual care in rural areas.

The new virtual care center was announced in 2021 as part of a $350 million philanthropic gift from T. Denny Sanford. His total giving to the health care system over the years comes to nearly $1.5 billion.

“It’s probably not lost on anybody the challenges that health care has faced over the last few years, everything from a pandemic to some of the economic challenges that we’re facing today,” Gassen said. “The opportunity to bring together two organizations that have extremely similar missions … is an incredible opportunity we just don’t want to miss.”

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