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Sanford Withdraws from Merger Talks with Fairview - Valley News Live - KVLY/KXJB - Fargo/Grand Forks

Sanford Withdraws from Merger Talks with Fairview

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Photo: Joel Koyama, Star Tribune Photo: Joel Koyama, Star Tribune

UPDATE

Sanford Health announced this afternoon they pulled out of the merger discussions with Fairview Health Services. The potential merger has come under fire from Minnesota lawmakers after it was revealed.  Some leaders called it a "takeover" of the university of Minnesota medical center.

In a statement released Wednesday, Sanford Health President Kelby Krabbenhoft says Sanford has a policy of only going where invited, adding they will only return to negotiations if Fairview and the University of Minnesota resolve their issues and Minnesota's attorney general fully understands Sanford's intentions.

The following letter was released by Sanford Health CEO Kelby Krabbenhoft:

"While it was always assumed that this merger of equals would create something uniquely special and important, it was never suggested that either party was "acquiring or controlling" the other. Those terms were never contemplated because they would be rejected on their face as unacceptable to each of these historic, charitable, and successful organizations.  Nonetheless, this misperception has been created to serve an agenda that undermines the good faith and emerging trust that is essential in any contemplated merger of this sort.  

Sanford Health has a philosophical policy of "only going where we are invited", and it seems as though the incredibly positive beginnings to discussions of the merger of Fairview Health and Sanford Health, has turned into a situation that finds us being unwelcome by some interested parties and key stakeholders of our proposed merger partner. It is inconceivable and unacceptable to me that we would ever propose a merger without the affirmation of these parties.

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. As such, I think it's time for Sanford to withdraw from this process, and only re-engage if Fairview and the University of Minnesota have sufficiently resolved issues within their relationship and secured a positive understanding by Attorney General Swanson of their intentions and plans. Until those conditions seem resolved it appears prudent for Sanford to disengage from this effort and will do so immediately.

I am providing the following information to our colleagues at Fairview, the Minnesota Attorney General, and the media for public awareness."

ORIGINAL STORY

 Attorney General Lori Swanson announced Tuesday that she will hold the first of what may be several public hearings on April 7, 2013 to receive comments on discussions involving the potential takeover of Fairview Health Services (a century-old Minnesota charitable institution which includes the University of Minnesota Medical Center) by Sanford Health of Sioux Falls, South Dakota.  Attorney General Swanson announced the hearings in the attached letter to Fairview's Chairman of the Board.

Attorney General Swanson says almost a year ago, following the completion of her office's compliance report involving Fairview's relationship with Accretive Health, Inc., Fairview announced it would commence a search for a new CEO, which it said would be completed with a year.  Attorney General Swanson said that her office was recently advised by Fairview that no chief executive recruitment has yet been undertaken.

Control of Minnesota charitable institution (Fairview) by out-of-state organization (Sanford).

The Attorney General's Office regulates charitable institutions.  The office noted that Fairview has a 100-year history as a charitable institution in Minnesota, having been managed by the Norwegian Hospital Association, then the United Church Hospital Association, and eventually the Evangelical Lutheran Association.

Today, Fairview generates more than $2 billion in annual revenue, has a net worth of about $1.2 billion, employs about 22,000 Minnesotans, and reported net annual income of $129 million in its most recently available quarterly financials. 

Attorney General Swanson said: "Fairview is an integral part of our health care system and exists because of 100 years of goodwill, generosity, and financial support of the people of Minnesota.  There should be significant public dialogue about any potential transfer of control of this century-old Minnesota charitable institution to Sanford Health of South Dakota." 

Control of University of Minnesota Medical Center by out-of-state organization.

The University of Minnesota Medical Center and clinics are part of Fairview as a result of a 1997 Affiliation Agreement between the two organizations.  As part of that agreement--which runs through 2026 and may be renewed for another 60 years--Fairview agreed to support the University's mission as a world-class academic medical center.  Attorney General Swanson said:  "There was over one year of public debate before Fairview--a local charitable institution governed by Minnesota residents with ties to the University--took control of the University of Minnesota Medical Center in 1997.  There should be robust public discussion and input now too."

The Attorney General noted that the University of Minnesota Medical School trains about 70 percent of Minnesota doctors and anchors one end of a famed "medical alley" whose medical device and health care companies employ tens of thousands of Minnesotans. 

Attorney General Swanson said her Office decided to conduct public hearings as part of its role as regulator of charitable institutions to give the public the opportunity to participate in this dialogue:  "I am troubled by the notion that a small group of people at Fairview and Sanford would conduct private discussions without the benefit of the public's input regarding a matter of such sweeping consequences for Minnesota when it comes to control of the University health system, the quality of health care for our patients, and our State's economy and international prestige."  

Statement from Sanford Health

"Recent attention by the media and inquiry from the Attorney General of Minnesota about Fairview Health and Sanford Health has prompted us to provide clarity about discussions the two parties are having.  Sanford and Fairview have only agreed to discussions and exploratory review of each organization.  It is an unfortunate description of these timely and well-intended talks as some kind of "takeover" or acquisition.  Both Systems have found a unique affinity and early trust, but the complex and a significant process to actually achieve a merger, or combination of similarly sized large organizations must be thoughtfully and carefully done.  We hope to start that effort soon. 

The matter of "in-State" or "out of State" definitions is another unfortunate characterization, as Sanford is chartered in North Dakota, has well over $1 Billion in revenues in South Dakota, and has over 6,000 employees in Minnesota.  If the merger of these two organizations found its new charter in Minnesota, it would not diminish the historic Sanford and might actually enhance service for all. 

Fairview Health System-University of Minnesota and Sanford Health have agreed to an informal series of discussions for the purpose of learning more about each organization and possibly exploring the potential of what we each intend for the future.  The Health Care industry in the United States can be described as in a period of exploration, consolidation, and strategic reorganization in almost every state and region.  The Upper Midwest is no exception to the changes that are redesigning health care nationally and beyond.

Recent growth and restructuring at both organizations make this an incredibly appropriate time to have thoughtful and careful discussions about the future.   The leadership transition at Fairview is seen as a reasonable opportunity for combined management discussions without a leader having to be displaced.  There is a unique set of common cultural and organizational characteristics that set these two successful and historic organizations, comfortably at the conversation table.  The community culture of Fairview, and the similarly oriented Sanford find integration with physicians and the institutions at the heart of their cultures.  Coupled then, with the incredible academic and high-end quaternary services provided with the University of Minnesota, the discussions should prove to be enlightening and comfortable at the same time.  Recent forays into Research of various specialties and an international clinic initiative begun after the Philanthropy of Denny Sanford, hold the possibilities of discussions that may further enhance and compliment the international impact and Research of the University of Minnesota components of Fairview.

While very early in the process of learning about each other, it seems there is a lot of commonality in values and priorities between the two Systems.  We find ourselves intrigued by the possibilities and potential of our talks and yet we are comfortable with the notion of a careful and reasoned process to learn and think of what might be.  With no overlap in service areas, and no historic relationships to confuse the discussions, it seems like a perfect moment in time to pursue these talks.

Fairview and Sanford are similarly sized organizations of approximately $3 Billion in net revenues each and approximately 25,000 employees each.  Fairview is located with institutions in the Eastern and Northeastern parts of Minnesota, while Sanford Health composes 230,000 square miles in Western Minnesota, Iowa and North and South Dakota.

Sincerely, Kelby K. Krabbenhoft, president and CEO Sanford Health."

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