The University of Minnesota plans to ask the state for $950 million to acquire and operate its flagship academic health care facilities now operated under an affiliation agreement with Fairview Health Services.
Fairview plans to merge with South Dakota-based Sanford Health.
The university, which previously said it intended to seek state help but had not put a dollar amount on its ask, laid out the proposal Friday. The board of regents will consider it at a March 10 meeting although officials will present the plan to lawmakers during a legislative hearing March 7.
Acquiring the health care facilities — University Medical Center East and West Bank facilities, Masonic Children’s Hospital and the Clinics and Surgery Center — carries a $300 million price tag and covers the transfer of facilities, as well as funding for workforce needs, union contracts and new leadership for a university-operated organization.
Fairview owns the East and West Bank hospitals while the university owns the East Bank land. The Children’s Hospital and its land are owned by Fairview although the university’s foundation “supported” the hospital.
The acquisition is needed to stave off “out-of-state control” of the academic health system, the university said.
“Before us is a once-in-a-lifetime opportunity to channel the university’s 170-plus year legacy of discovery, service and world-class impact to elevate the health of Minnesotans for generations to come,” university President Joan Gabel said in a statement. “But we can only do so through a strong partnership with the State. The positive return on this investment is clear.”
Another $650 million is needed to provide capital support including providing 90 days of operating capital to cover payroll, supplies, professional services, etc. “The funding will also provide time to turn around operating losses and begin generating positive financial results,” a statement read.
Fairview and Sanford signed a non-binding letter of intent to merge and create a single integrated system in November, with hopes of closing the transaction early this year.
The university opposes the merger as currently proposed and the process has been slowed with pushback also from state regulators.
“The charitable assets of the university’s academic health facilities and operations have been supported by Minnesotans and must be governed by the University of Minnesota,” said Jakub Tolar, dean of the Medical School and vice president for clinical affairs.
Fairview operates the University of Minnesota Medical Center under an affiliation agreement established in 1997, which Moody’s Investors Service said gives Fairview a competitive boost in the region. The existing agreement ends in 2026.
“We have shared that we are open to discussing options for the university to purchase the medical center and other Fairview assets on its campus at fair market value. However, many important details from the announcement today remain unclear,” Fairview said in a statement.
Fairview said since the East Bank hospital opened in 1997, it has invested $911 million of capital in facilities on the university campus in addition to millions in academic support for the university’s teaching mission.
Fairview operates 10 hospitals in the Twin Cities metropolitan area, which extends into northern Minnesota and western Wisconsin, with $6.4 billion of operating revenue in fiscal 2021.
The two systems entered into talks to merge in 2013 but ran up against public and political pushback. Minnesota’s attorney general at the time, Lori Swanson, along with some state lawmakers and others, raised concerns over an out-of-state system taking control of the university medical center and the two ultimately canceled talks.
The systems would each retain their regional presence, leadership and regional boards in the markets they serve. The name of the parent company would become Sanford Health and Sanford Chief Executive Officer Bill Gassen would take the helm as president and CEO with Fairview Health Services CEO James Hereford in the role of co-CEO for one year post-closing.
Sanford, headquartered in Sioux Falls, is the largest rural health system in the United States with $6.7 billion in revenues and 47 medical centers, more than 200 Good Samaritan Society senior care locations, and world clinics in eight countries.
The systems have not disclosed plans for their municipal bond debt.
Moody’s in January lowered Fairview’s rating to Baa1 from A3. The action did not factor in the pending merger. S&P Global Ratings rates Fairview A with a stable outlook after a 2021 downgrade due to operating losses.
Sanford carries a Fitch Ratings rating of AA-minus and stable and S&P rates Sanford A-plus and stable.