Fairview Health Services says no to University of Minnesota plan for merger with Essentia Health

Fairview Health Services said Wednesday it does not support merging with Duluth’s Essentia Health, a key plank in a University of Minnesota plan to shore up its hospitals and training programs.

The U and Essentia last month announced the plan to create a statewide nonprofit health system, including a $1 billion investment over five years in the U’s programs. U President Dr. Rebecca Cunningham said at the time the U did not want to develop the new health system without Fairview, which has owned University of Minnesota Medical Center since it acquired the teaching hospital in a financial bailout more than 25 years ago.

Fairview leaders said they’ve told U officials that they might support such a proposal if it were structured as a “strategic partnership,” but the Minneapolis-based health system opposes an outright merger, according to a letter CEO James Hereford is distributing Wednesday to health system workers.

“We believe it is essential for Fairview to maintain our independence and commitment to the patients and communities we serve and to continue the improved performance that Fairview has achieved in the last two years,” Hereford said in the letter, which was co-signed by John Heinmiller, chair of the health system’s board of directors.

There have been tensions between Fairview and the U for years, but debate over the future of the U’s academic health programs began in earnest after the collapse in July 2023 of Fairview’s proposal to merge with South Dakota-based Sanford Health, a deal the university opposed.

In response to the Fairview letter, the U issued a statement Wednesday saying it remains “hopeful there is opportunity to build a bold, shared solution that best meets the needs of patients and Minnesota — both now and in the future."

Under the merger plan Cunningham proposed last month, Dr. David Herman, the CEO at Essentia Health, would head the new nonprofit. This “NewCo” would own and operate the legacy Fairview facilities and operations, the legacy Essentia facilities and operations and the UM Clinics and Surgery Center on the university’s East Bank campus, according to a Feb. 10 background document provided by the U.

Hereford said Fairview continues to support the university’s previous goal of acquiring the U hospital as outlined in a February 2024 letter of intent. But he raised concerns about the NewCo idea, saying Fairview believes “operating as an independent nonprofit organization is the best way forward.”

“Particularly where our mission, vision and values are not aligned with those of NewCo, we must be able to continue to make decisions about the care we deliver at Fairview,” the letter says. “We know that for so many of you, our ability to meet the full spectrum of care needs of our community is central to your choice to work at Fairview.”

The letter does not specify what services Fairview wants to protect as part of a full spectrum of care, but family medicine doctors at the U last month sent a letter to Cunningham asking what a combination would mean for the future of reproductive health services and gender-affirming care for transgender patients, since Essentia Health includes some historically Catholic hospitals.

The doctors cited a mission statement for Catholic facilities that says “all forms of contraception, abortion and infertility care are against these directives and are described as ‘amoral,’” according to a copy obtained by the Star Tribune. “Additionally, these directives are currently being amended to clarify that gender-affirming medical and surgical services are also not aligned with Catholic practice.”

In a statement to the Star Tribune, U officials said the university’s current practices and policies regarding women’s and other health issues will not change with the creation of the new nonprofit.

“As an accredited health sciences educator, the University teaches respectful care approaches for each patient encounter to ensure graduates are well prepared to meet the needs of every patient they care for,” the university said. “The secular approach used at most Essentia facilities, and the land-grant mission of the University of Minnesota to serve all Minnesotans, will guide the operations of this newly envisioned healthcare solution.”

The future of the U’s medical center and its relationship with Fairview is a crucial issue to the state because about 70% of physicians in Minnesota trained at the U. Fairview provides tens of millions of dollars in support each year for these training programs through an affiliation agreement.

The affiliation, which was last renewed in 2018, launched the M Health Fairview brand whereby the university and health system jointly market physician and hospital services across a health system that’s one of the largest in the Twin Cities. The resulting entity is one of the largest health systems in the Twin Cities.

But that affiliation agreement is scheduled to expire at the end of 2026. Negotiations for a new agreement are ongoing. In the letter Wednesday, Hereford and Heinmiller reiterated Fairview’s position that it can’t afford to continue providing financial support at current levels.

“We agree that the medical school is an essential component of the health care ecosystem in Minnesota — and that Fairview should not be alone in supporting their mission," they wrote. “Essentia has now indicated a willingness to support the University. We believe this is a good development.”

The Fairview letter said if the health system and the U can’t come to terms on a new affiliation agreement, academic physicians would still have access to University of Minnesota Medical Center and other Fairview facilities.

“We would continue to pay for provider services at market rates,” Hereford and Heinmiller wrote. “Clinical trials and research would continue. Training and education that currently happens today would continue to occur.”

They added that Fairview “would continue to provide academic support at an amount commensurate with a future partnership.”

Under the proposal unveiled last month, Essentia Health would commit assets to the new nonprofit. Going forward, the U and health system partners would share aligned incentives within the new entity, Herman has said, rather than negotiate arm’s length transactions, to generate financial support for academic health training and care.

Fairview in 2022 was the state’s fourth-largest nonprofit group, with 34,000 employees and about 1.2 million patients across the state. Essentia Health at the time was the state’s eighth-largest nonprofit organization by revenue with 14 hospitals and 78 clinics, mostly in northern Minnesota.