Fairview Health, Sanford enter merger talks

Fairview Health Services, Minneapolis, has entered into merger talks with Sanford Health, a rapidly expanding South Dakota health system.

The deal would combine two organizations of roughly similar size and accelerate Sanford Health's expansion into Minnesota.

Ryan Davenport, a spokesman for Fairview, said in a statement that talks were preliminary and officials had discussed a possible deal with Minnesota Attorney General Lori Swanson.

A spokesman for Minnesota's attorney general could not be reached at deadline. Swanson told the Minneapolis Star Tribune she would schedule public hearings on the possible takeover of Fairview, which includes the University of Minnesota's teaching hospital, by a South Dakota health system.

Sanford Health President and CEO Kelby Krabbenhoft said in a statement that it was “unfortunate” that Swanson characterized the talks that way in an interview with the Star Tribune's editorial board.

“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,” Krabbenhoft said.

Krabbenhoft noted that the departure of Fairview CEO Mark Eustis last year would ease the transition if a deal is made. Other factors could help as well, he said. “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.”

Davenport, the Fairview spokesman, said the system's governing board was considering a merger or other partnership. “Fairview's mission is to improve the health of the communities we serve,” Davenport said. “In order to do this, we must continually assess how best to thrive in this dynamic and competitive healthcare environment.”

Fairview, which includes the 778-bed University of Minnesota Medical Center and five other Minnesota hospitals, reported operations on par with Sanford Health, which owns, leases or manages 33 hospitals.

Fairview's revenue totaled $3 billion in 2011, but technology costs and a new children's hospital sharply reduced the health system's operating income to $16.7 million that year. Financial results for 2012 are not yet available, but for the first nine months of the year, Fairview's revenue increased 9% to $2.4 billion and its operating income totaled $79.3 million. Fairview's fiscal year ends in December.

Sanford Health finished last year with $2.5 billion in revenue and operating income of $79.3 million. Sanford's fiscal year ends in June.

Sanford has strung together a series of deals across Minnesota and the Dakotas in recent years.

In January, the system closed on a deal for the Hillsboro (N.D.) Medical Center. In July 2012, Sanford opened a new hospital in Aberdeen, S.D., and closed on a deal for Medcenter One in Bismarck, N.D. Last January, Sanford took over the Broadway Medical Center, Alexandria, Minn., following an acquisition six months earlier of the Wheaton (Minn.) Community Hospital. Sanford also acquired Clearwater Health Services, Bagley, Minn., last year.