The $14 billion merger between Sanford Health and Fairview Health Services could be delayed due to concerns from Minnesota’s top regulator.
The nonprofit Midwest health systems announced a settlement in November that they plan to end by March 31. But Minnesota Attorney General Keith Ellison (D) has asked Sioux Falls, Sanford Health to have it. South Dakota-based and Minneapolis-based Fairview Health Services postponed their proposed merger, citing his office’s continued investigation into its consequences.
The attorney general’s office has not decided “whether there is a reason to sue,” Deputy Attorney General John Keller said at a community meeting in Worthington, Minnesota, on Wednesday, following prepared remarks. his equipment. The state legislature is also planning hearings, he said.
“Doing this right is more important than doing it fast, and that’s why the current deadline for the parties involved is the attorney general’s office,” Keller said. “We have therefore formally asked the parties to delay the March 31 closing date, and we are awaiting their official response,” Keller said.
Sanford and Fairview said they are working to ensure the attorney general’s office has the necessary information.
“This merger aims to do more for the people we serve, and every day we delay the Sanford and Fairview merger is a missed opportunity to realize significant benefits for patients, the people and communities we serve. This merger also aims to take important steps to provide the financial sustainability needed to serve Minnesota communities for generations to come,” the health systems said in a joint statement.
Matthew Anderson, a senior lecturer in health policy and management at the University of Minnesota, said Sanford and Fairview will need to focus on finalizing their agreement while also working with Ellison.
Anderson said health systems should act quickly to reduce merger costs, maintain momentum and minimize uncertainty among current or potential employees, insurers, providers and other stakeholders, Anderson said. Companies also need to act quickly to stay ahead of any other state action, he said. But they need to maintain good relationships with the state government and the University of Minnesota, where Fairview owns a hospital, he said.
“Throwing sand in the face of the attorney general would be a high-risk move,” Anderson said. “If the AG asks to slow down the proposed merger and the parties say no, does that create the perception that they are trying to hide something?”
The University of Minnesota has expressed concern that the proposed merger is happening too quickly and its benefits have not been adequately considered, Keller said. Fairview acquired the University of Minnesota’s M Health Fairview Medical Center in Minneapolis 26 years ago.
Sanford CEO Bill sought to assuage those worries at a meeting in Worthington on Wednesday. Following his prepared remarks, Gassen said the merged company will honor agreements with the University of Minnesota and its leading medical center. The current deal expires in 2026.
“That leaves enough time for the combined system to work with the university on the terms of its acquisition of the medical center it sold to Fairview in 1997 and define a future clinical relationship,” says Gassen. what the future will be. “Nothing – I repeat, nothing – will change for the University of Minnesota as a result of this merger.”
Gassen said there are no plans to close the facilities because of the merger. If the deal is approved, he will serve as chairman and chief executive officer of the combined system and Fairview CEO James Hereford will serve as co-CEO for a year. The new company, which will be called Sanford Health, will operate more than 50 hospitals and employ about 80,000 people.
Sanford Health and Fairview Health Services tried unsuccessfully to merge in 2013 but faced resistance from Ellison’s predecessor, Lori Swanson (D). Swanson also expressed concern about the impact of the agreement on the University of Minnesota hospital. Sanford withdrew from the agreement over objections from the attorney general.
Both health systems cite financial stability as the main reason for the new deal, but questions remain as to whether it can improve their financial positions.
Fairview posted operating losses for the first nine months of 2022, according to its most recent financial report, resulting in a credit rating downgrade this month. Fairview recorded an operating loss of $213.8 million on $4.9 billion in operating revenue, compared with an operating loss of $120.9 million on $4.75 billion in operating revenue. compared to the same period of the previous year. Its cash of the day dropped from 158 to 118 during that time period. The company, which has $1.57 billion in outstanding debt, also posted annual operating losses in 2019, 2020 and 2021.
Although credit rating agencies were not involved in approving mergers and acquisitions, Moody’s Investors Service downgraded Fairview from A3 to Baa1 and assigned it a negative outlook. According to the Moody’s report, the company’s weak performance will be difficult to reverse, especially in light of high labor and supply costs and a relatively low number of inpatients. Fairview has a strong market position, good size, appropriate cash-to-debt levels and substantial income from its specialized pharmaceutical operations, but a decline in investment income should help mitigate operating losses, Moody’s wrote.
Sanford reported operating income of $32.8 million on $5.12 billion in operating revenue for the first nine months of 2022. This is down from $284.2 million in operating income over five, $22 billion in revenue year over year. Its cash of the day dropped from 154 to 118 during that time period.
