Geography may be key in any deal for Fairview Health

Merger talks are swirling around Minneapolis-based Fairview Health Services and Sanford Health of North and South Dakota. Minnesota Attorney General Lori Swanson wants the public to weigh in on the situation at a hearing on Sunday at the Capitol.

Meanwhile, the University of Minnesota has just revealed its own offer to acquire Fairview.

The fate of Fairview is much ado about location. The urge to merge is strong in the health care sector now with less than a year to go before major provisions of the federal health care overhaul take full effect.

As recently as January two Minnesota nonprofit health systems -- Bloomington-based HealthPartners and St. Louis Park-based Park Nicollet -- merged, creating a huge health care organization in the Twin Cities.

But a potential merger between Fairview and Sanford would be very different. Even though both are nonprofits, Sanford is based outside the state.

The control of the merged organization and its headquarters location are closely linked, said former hospital executive Dan Zismer, who heads the Master in Healthcare Administration Program at the University of Minnesota.

"Is it domiciled in South Dakota or it domiciled in Minnesota?" Zismer said. "And what prerogatives does the new governing body have over the ... assets and the ongoing mission of the organization?"

Swanson said Fairview and its University of Minnesota Medical Center are assets belonging to Minnesotans.

Fairview has a net worth of $1.2 billion even as a charity, Swanson said, adding that the $1.2 billion exists only because the people of Minnesota gave the system tax preferences, money, land and volunteer time.

"If an outside state organization takes control of the charitable and public organization," Swanson said, "then it could potentially dissipate those assets, drain those assets away, fuel their own expansion plans and the footprint they're trying to get in other states or around the world."

Sanford is based in Sioux Falls, S.D., and operates clinics in eight states. The company has said concerns about its non-Minnesota headquarters are unfortunate, in part because the firm employs 6,000 Minnesotans.

Its namesake and primary benefactor T. Denny Sanford grew up in St. Paul, is a University of Minnesota alumnus and founder of First Premier Bank. Six years ago, he gave a $400 million gift to the South Dakota Valley Hospitals and Health System, which was renamed Sanford Health.

Fairview has been trying to rebuild its reputation after its aggressive former debt collector Accretive Health settled a lawsuit with Swanson for $2.5 million.

The settlement came after hearings in which Fairview patients told grim stories of being asked for payment while suffering in hospital emergency rooms. Fairview escaped unscathed legally, even though it has yet to replace its CEO.

But if Sanford wants Fairview, so does the U. Fairview operates the medical school's main teaching hospital, and university officials have expressed concerns similar to Swanson's about a Sanford takeover.

But proposing a takeover of Fairview is surprising given that the university got out of the hospital business in 1997 when it turned the teaching hospital over to Fairview that year.

It's unusual that a university hospital would want to acquire a big health system like Fairview, said Paul Ginsburg, president of the nonpartisan Center for Studying Health System Change in Washington, D.C.

"It's usually the other way around, where the university hospital is the big flagship part, Ginsburg said. "It might be acquiring community hospitals say, that's probably the most common expansion of university hospitals."

Swanson said that back when the University of Minnesota Medical Center was taken over by Fairview, there was a year of public debate and discussion.

"The hearing on Sunday will be our first public step toward creating that dialogue in the process," she said. "And at this point, we don't rule anything in or out in terms of what ultimately happens. I hope that the public dialogue created here will help inform the Fairview board of directors, too."

In addition to the public, representatives from Fairview, the University of Minnesota Hospital and Sanford are expected to testify. The hearing begins at 1:30 p.m. Sunday at the state Capitol.

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