CHICAGO — Minneapolis-based Fairview Health Services and South Dakota-based Sanford Health have canceled discussions over a possible union due to mounting opposition in Minnesota since Attorney General Lori Swanson's disclosure two weeks ago of the early stage negotiations.
Swanson, whose office regulates not-for-profits, along with some lawmakers, and others had raised concerns over a possible acquisition of Fairview by the larger Sanford and the impact on the University of Minnesota Medical Center and Clinics. Fairview and the university are closely linked under a 1997 affiliation agreement that runs through 2026 and can be extended.
Swanson expressed reservations about the talks being conducted in private and recently held a public hearing on the subject. Some of the anger was directed at the prospect that an out-of-state system would take control of the university's hospitals.
The university trains about 70% of Minnesota doctors. Fairview operates seven hospitals, including the University of Minnesota Medical Center and University of Minnesota Amplatz Children's Hospital and it generates $3 billion in annual revenues. The university offered to acquire Fairview's assets and liabilities after Swanson disclosed negotiations.
The two systems had stressed that their talks about a possible marriage or acquisition were in the early stages and the intention was never for Sanford to take control of Fairview, but amid growing opposition Sanford announced it was halting talks Wednesday.
"I am now concerned that the good reputation of Sanford may be injured by a process that only intended the highest of ideals and integrity for what we believed to be a compelling solution to the challenges facing health care delivery today and in the future," Sanford chief executive officer Kelby Krabbenhoft said in a statement. Talks could resume if Fairview and the university resolve issues over their relationship and Swanson's concerns are eased.
"We understand why they would choose to step back at this time, but the news comes as a disappointment," Fairview's interim chief executive officer Chuck Mooty said in a statement.
A state representative has sponsored legislation which would ban any University of Minnesota hospital from being handed over to a non-Minnesota system.
Sanford is based in Sioux Falls. It operates 35 hospitals and 140 clinics in eight states and also generates $3 billion in annual revenue.
Fairview got hit with a downgrade from Moody's Investors Service last June and a warning of further negative action due to fiscal 2011 operating losses and potential fallout from the state attorney general's probe into its bill collection practices.
Moody's lowered the rating to A3 from A2 and assigned a negative outlook on $836 million of debt. The system suffered a significant downturn in its financial performance in fiscal 2011. The system also is struggling with unexpected senior management turnover and faces "potential reputational risks" following the negative headlines from Swanson's probe of Chicago-based Accretive Health over its aggressive billing practices.
Sanford was hit with a downgrade by Standard & Poor's to A-plus from AA-minus ahead of a bond sale last fall due to concerns its ambitious capital plans could strain its balance sheet. Moody's Investors Service affirmed its A1 rating and stable outlook, but also said future capital plans could pose a challenge.
