HomeMy WebLinkAbout2017 03-08 Fairview, HealthEast plan merger to form Twin Cities biggest hospital network STAR TRIBUNE
Fairview and HealthEast to form area's biggest network -StarTribune.comPage 1 of 2
LOCAL
Fairview, HealthEast plan merger to
form Twin Cities biggest hospital
network
Leaders of the two health systems said merging would create
efficiencies and save money.
By Jeremy Olson(http://www.startribune.com/jeremy-olson/101258184/) Star Tribune
MARCH 8, 2017 — 10:11PM
Fairview Health Services and HealthEast Care System announced merger plans
Wednesday morning to form the Twin Cities’ largest network of hospitals and clinics, a
move that would combine a strong primary care presence in the East Metro with the
medical sophistication of the University of Minnesota Medical Center in Minneapolis.
Leaders of the two health systems said merging would create efficiencies and save
money — a particular concern for HealthEast given recent financial losses — and expand
the referral base of clinics sending patients with complex needs to the university
hospital.
“It allows us to lower cost and create more value and take waste out,” said James
Hereford, Fairview’s president and chief executive, who would lead the expanded
organization of 11 hospitals and 56 primary care clinics.
A deal is anticipated in late spring, although it requires approval by the Federal Trade
Commission (FTC) and Minnesota Attorney General Lori Swanson, whose public
challenge helped scuttle merger talks between Fairview and Sanford Health in 2013.
The lack of overlapping services or service areas makes it less likely that regulators will
object on antitrust grounds, said Allan Baumgarten, a veteran Twin Cities health care
analyst.
Fairview probably was keen to add a hospital such as Woodwinds in a suburban, upper-
income location, he added, while HealthEast needed more specialty care to offer
patients. “HealthEast … needed to grow, but is kind of landlocked in its geography,”
Baumgarten said.
Fairview owns the U’s medical center, in addition to Fairview Southdale in Edina and
The merger
Ridges in Burnsville, among other hospitals. HealthEast owns St. Joseph’s in St. Paul, St.
• Fairview Health Services owns Ridges
(http://stmedia.startribune.com/images/ows_142024372913622.jpg)
John’s in Maplewood and Woodwinds in Woodbury. Based on operating revenue of $3.9
JOEL KOYAMA, STAR TRIBUNE
Hospital, Fairview Southdale and the
billion for Fairview and $965 million for HealthEast in their 2015 fiscal years, the
Fairview Health Services is proposing to merge
University of Minnesota Medical Center, plus
merged system would be the largest in the Twin Cities. Allina Health currently rivals
with HealthEast to create the largest network
other facilities.
Fairview with 14 hospitals and $3.8 billion in revenue in 2015.
of clinics and hospitals in the Twin Cities.
The potential merger makes sense geographically, given how Fairview’s network of • HealthEast Care System owns St. Joseph’s
clinics and hospitals wraps to the west and north around HealthEast’s facilities in the St.
Hospital, St. John’s Hospital and
Paul area. Both organizations also have services beyond clinic and hospital care:
Woodwinds.
HealthEast operates an ambulance service and Fairview operates the Ebenezer brand of
• Together, they will run 11 hospitals and 56
long-term care services and owns the PreferredOne health plan.
clinics.
The merger is likely to give patients more clinic options closer to home and easier access
to specialists, said Kathryn Correia, HealthEast’s president and chief executive.
“The entire system can give \[patients\] a clearer path to the care that they need,
particularly subspecialties,” Correia said. “It allows a greater range of services than
HealthEast provides today, to be sure.”
HealthEast posted an operating loss of $7.9 million in its 2016 fiscal year, and of $5
million in its first fiscal quarter of 2017 — despite being the leading provider of inpatient
hospital care in the East Metro.
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Fitch Ratings last year downgraded HealthEast’s bond rating because of concerns about
its investments in primary care, which isn’t a moneymaker compared to other
specialties. Correia said the merger is more about improved medical care than her
system’s financial vulnerability.
“The community benefits from us working together,” she said.
Minnesota has seen extraordinary consolidation of hospitals and clinics over the past
decade as health systems have tried to widen their patient networks, streamline costs in
areas such as electronic record keeping, and fortify their negotiating positions with
health insurers.
Sanford Health, Essentia Health, Mayo Clinic and CentraCare Health have swallowed
up hospitals and doctor groups across rural Minnesota, while Park Nicollet and
Methodist Hospital in St. Louis Park merged in 2013 with HealthPartners and Regions
Hospital in St. Paul.
Health insurers have been uneasy about the trend. On one hand, a larger hospital-clinic
system allows insurers to offer consumers a health plan that features tight networks of
one or two providers with complete lines of medical care. On the other hand, research
has shown that larger hospital groups gain market power to negotiate payment rates
with insurers, which can drive up costs.
“Of course, mergers are going to happen, but the key question is how it impacts the
medical bills that Minnesotans will pay,” said Jim Schowalter, chief executive of the
Minnesota Council of Health Plans, which represents the state’s bigger health insurers.
As with the HealthPartners deal, the proposed Fairview-HealthEast merger will be
scrutinized by the FTC and the U.S. Department of Justice to ensure that it doesn’t
artificially inflate prices and suppress competition. In a written statement, Swanson said
Wednesday that she will “participate” in those reviews.
Fairview failed last year in an attempt to merge with the University of Minnesota
Physicians group, which co-manages and staffs the U’s flagship hospital in southeast
Minneapolis. Hereford said the addition of HealthEast should strengthen Fairview’s
position as a provider of academic medicine, because it will have more clinics referring
patients to the U for specialty care.
“The opportunity to combine both the academic and community care delivery systems
provides a unique strength,” he said.
The proposed deal would maintain Fairview’s board of directors but add three members
from HealthEast.
Fairview’s name was set to disappear in the merger with the University physicians.
Hereford said it is too soon to discuss new branding or names, or changes in facilities or
jobs for the combined system’s 32,000 employees.
Correia said the deal is likely to mirror the HealthPartners merger, in which Park
Nicollet retained its brand at its West Metro hospital and clinics.
Staff writer Chris Snowbeck contributed to this report.
jeremy.olson@startribune.com
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