Swanson grills Sanford executives on proposed Fairview merger

Minnesota Attorney General Lori Swanson took top executives of ­Sanford Health to task Sunday, complaining the firm had been less than forthcoming about its merger plans with Fairview Health Services and questioning the South Dakota nonprofit's ties to the business interests of billionaire ­philanthropist T. Denny Sanford.

In a packed hearing room at the State Capitol, Swanson drew attention to Sanford Health's status as a customer of the private banking businesses of Sanford, including a debt-collection company called Rushmore Service Center. "It sounds like Mr. Sanford is benefiting from his companies doing business with your hospital," Swanson said.

The merger proposal that could give Sanford Health control of the University of Minnesota Medical Center also has focused attention on the U's relationship with Denny Sanford, an alum who is a major benefactor of U athletics.

In a key moment during Sunday's hearing, Swanson was told that U President Eric Kaler has promised not to ­consider any charitable gift from Sanford while Fairview remained in merger talks with the South Dakota firm.

Sanford Health executives said Sunday that an internal analysis has found that a Sanford-Fairview merger would save $40 million to $60 million annually and that it would be irresponsible of the two nonprofits not to explore the ­benefits of a combined operation.

But Swanson said she was just beginning to scratch the surface in her investigation of the proposed merger and that she will hold a second hearing in two weeks. Swanson said her job is to protect against any inappropriate siphoning of assets belonging to the U and Fairview.

"This is very, very, very serious business for all of Minnesota," said David Finewachs, a former Minnesota Hospital Association lawyer, who was called by Swanson to testify that Fairview is stable, successful and not facing a financial crisis that would call for a merger.

The crowd applauded when he said any merger that would give Sanford Health control of the U of M Medical Center and Fairview would be like "selling the public library to Wal-Mart."

He added: "We don't need to export our most precious resources."

Swanson said her office has been getting mixed signals from Sanford Health about a number of issues. Despite Sanford's repeated public statements that talks with Fairview are in early stages, Swanson established through her questioning of the company's executives that an antitrust evaluation has already been completed and that Fairview and Sanford are deep into the process of creating a detailed list of economic and patient-care efficiencies.

Becky Nelson, Sanford senior vice president and chief operating officer, defended those efforts, saying her firm and Fairview have completed 10 or 15 drafts of a "synergy book." She said the progress of the potential merger would be "artificially restrained" if the firms aren't allowed to pursue their talks.

"We bring a track record of promises made, promises kept," added David Link, senior executive vice president.

But Swanson said Sanford's verbal assurances of cooperation with regulators has been at odds with the company's refusal to answer questions from her office. Sanford is currently in violation of Minnesota's nonprofit registration status for operations it has in western and northern Minnesota. Even after the attorney general's staff sent a letter asking for reams of information, Swanson said, the company produced only one document.

Like Fairview, Sanford is a nonprofit health care company, and Swanson questioned why a tax-exempt organization like Sanford Health is spending millions of dollars on naming rights and other support for a civic center in Sioux Falls and university sports programs in North and South Dakota.

Link and Nelson said the sports-related gifts were in conjunction with Sanford's mission to support sports medicine and fitness.

But after listening to Link describe various spending by Sanford Health to boost ­university athletic programs and local athletic facilities, Swanson asked him: "Can you see how the focus here [in Minnesota] should be on patients, not sports and athletics?"

Swanson also told the hearing that her investigators "have been hard-pressed to find anyone at the university who wants" to go into business with Sanford Health.

Kaler didn't attend ­Sunday's hearing, but members of Swanson's staff asked U general counsel Mark Rotenberg whether Kaler's recent proposal to take over all the assets and liabilities of Fairview was meant as a ­pre-emptive strike against a marriage between Fairview and Sanford. Fairview, ­Minnesota's second-largest health care provider, has controlled the U hospital and clinics since 1997. The hospital affiliation is central to the U's academic health ­center, including the training of 70 percent of doctors in the state.

"It's fair to say that Sanford's efforts have focused the minds of many people on what is at stake," Rotenberg said.

He said the university supports the attorney general's careful examination of the effects of a Sanford-Fairview merger and that U executives will work over the next several weeks to gain clarity on whether some new alignment with Sanford was worth exploring.

Chuck Mooty, Fairview's chairman, testified that there is merit in the university exploring a deal involving Sanford, partly because changes in the health care industry are demanding consolidation to stay competitive. But Mooty said he would not force a merger with Sanford onto the U.

"If he [Kaler] would like to veto the deal, that would be the end of it," Mooty said.

Rotenberg had opened the university's portion of the hearing by saying Kaler had imposed a moratorium on all discussions of charitable gifts that could create any question of a conflict of interest. The moratorium, he said, was to reassure the public that the process of health care merger talks "won't be tainted in any way with gifts for football or athletics or anyone else."

The moratorium would cover any potential gifts from Sanford, a wealthy U alumnus whom Kaler and the athletic department are openly courting for a major donation to improve the school's sports training facilities.

Tom Fuller and Gary Printup, two men who received organ transplants at U hospitals, implored Swanson not to let a South Dakota ­company take over the university's health care delivery system.

"Please don't let the university hospitals be lost to an out-of-state institution," said Fuller, a lung transplant survivor from New Brighton.

Tony Kennedy • 612-673-4213