M Health Fairview-Sanford merger: Experts weigh in
The proposed merger of Sanford Health and Minneapolis-based Fairview Health Services has drawn widespread reaction, including an investigation by Minnesota Attorney General Keith Ellison’s office, which regulates charities and reviews anti-trust concerns.
Combined, the two hospital networks would be one of the largest health systems in the nation. Sanford, based in Sioux Falls, S.D., is already the country’s largest provider of rural health care, and the health care giants have said joining forces could improve patient outcomes and the patient experience while providing more affordable care.
Critics have already deluged the attorney general’s office with concerns. The proposed merger has raised questions around reducing choice and competition, as well as moving Minnesota assets, including control of the state’s two teaching hospitals on the University of Minnesota campus, out of state.
Industry analysts say those fears are not unfounded.
“It’s hard for a system that has had no experience with a major teaching hospital to figure out how to manage it,” said Vivian Ho, a health economist at Rice University in Texas.
“You’re offering completely different services,” Ho said. “You’re helping the sickest patients with the most complicated care. It’s a whole different level of expertise and technology. Rural hospitals don’t have competition. They’re usually the only hospital in the market.”
Teaching hospitals, financial challenges
University of Minnesota officials issued a public statement in November noting the teaching hospitals educate the majority of Minnesota’s doctors, and questioning whether the Fairview-Sanford merger would respect “faculty independence,” as well as patient care, and how it would address Fairview’s financial challenges.
Fairview Health Services’ net operating loss last year reached $132 million, though it recently eliminated core services at St. Joseph’s Hospital and the former Bethesda Hospital in St. Paul, which accounted for a large part of the losses.
When merger talks surfaced between Sanford and Fairview in 2013, then-Gov. Mark Dayton suggested removing the teaching hospitals from the negotiations and giving them back to the U.
“The university health system is probably one of the most attractive things about Fairview to Sanford,” said Allan Baumgarten, a health care market analyst based in St. Louis Park. “Whether Fairview would be attractive to Sanford if the academic health center was separated out from the deal is an open question. My sense is not. I don’t give this (merger) better than a 50-50 chance of coming to completion.”
And if Sanford acquired the two teaching hospitals?
“I think Sanford is attracted to the prestige of a teaching hospital,” Baumgarten said, “but I think it would have less patience for how much that costs, and how much you have to scramble to find that money elsewhere in your system, or cut back on some of those key functions of the academic health center.”
Diverging cultures, from abortion to urban care
Then there are questions about diverging corporate cultures and the potential impact on consumers in terms of both prices and services. For instance, the Fairview system, which includes 11 hospitals and more than 80 primary and specialty care clinics, is heavily unionized, and Sanford’s 47 medical centers are not.
The two health networks both provide assisted-living housing with senior care services, but their services diverge elsewhere. Sanford, as a matter of policy, does not offer elective abortions, which are banned by state law in South Dakota except in limited circumstances.
Fairview does not openly advertise abortion services beyond “Plan B” emergency contraception, but it does invite patient questions about abortion, and a spokesperson issued a written statement Thursday in support of doctor-patient autonomy and “all aspects of reproductive healthcare.”
“There are no changes contemplated to Fairview’s care policies — including on reproductive health and gender care — as a result of this merger,” said Fairview spokesperson Aimee Jordan, in the statement.
Abortion rights in Minnesota expanded this summer when a Ramsey County District Court judge struck down a series of restrictions, such as the state’s 24-hour mandatory waiting period and a requirement that both parents be notified before a minor has an abortion.
Some industry analysts have already begun to call the merger more of an acquisition, given that Sanford will be the new parent company, it has some 45,000 employees compared to Fairview’s 31,000, and Sanford’s chief executive officer Bill Gassen will oversee the entire merged company after one year of co-leading with Fairview president and CEO James Hereford.
“When you look at who’s the CEO and where’s the headquarters located, it’s more Sanford taking over Fairview,” Baumgarten said. “I don’t know that Fairview has a lot to learn in terms of rural health care from the merger, which was touted as one of the benefits.”
This is one of several merger attempts by Sanford over the past decade. Merger talks between Fairview and Sanford were called off in 2013 following public hearings led by then-Attorney General Lori Swanson.
Ellison’s office has created an online form for public feedback and opened phone comment lines at 651-296-3353 in the metro and 800-657-3787 for outstate residents. Hearings are expected at the state Capitol, with details to be announced later.
Here’s a selection of industry analysts’ views on the proposed merger:
Bryan Dowd is a professor of health policy and management at the University of Minnesota’s School of Public Health.
“The literature on hospital mergers is that they result in higher prices and no change in quality. Affordability and safety are the main issues in health care today and I don’t see how the merger is going to improve either one. Hopefully, Fairview and Sanford have some plans to improve efficiency, not just increased market pricing power, but the literature would suggest that is not the case.”
“Anything that reduces the number of independent choices available to consumers in a market area allows all the suppliers of that product in the market to raise their prices.”
Vivian Ho, the health economist at Rice University, which in 2010 broke off efforts to acquire Baylor College of Medicine where Ho also is a faculty member, holds a doctorate in economics from Stanford University.
“Hospitals in the same market, when they merge they can increase their prices. Economists are now talking about how companies hire workers nationwide, or in multiple states, so they want particular health systems in their network that provide care in multiple different markets. When that health system gets really big, it can do ‘all or nothing’ deals with a company’s insurer and say, ‘If you want to do business with us, you have to include all of our hospitals in our contract, and oh, by the way, these are the prices you’re going to have to pay.’ ”
“I can understand why the faculty are concerned. They have a mission of teaching and education. … Teaching hospitals are the ones that end up being the safety net, and physician-teachers want to teach residents and medical students how to treat low-income populations, who can present with multiple chronic diseases, plus mental health problems. You really want to look closely at what sort of community benefits Fairview is providing.”
Health policy professor
Stephen Davidson is professor emeritus at Boston University’s Questrom School of Business, where he spent most of his career teaching and writing about health policy and management in the Markets, Public Policy and Law Department.
“In general, I think it is fair to say that mergers do not always work — at least not for years — if the cultures of the two institutions differ. … I would worry about the fate of teaching in merged hospitals because that takes resources which insurers do not like to cover.”
Health care market analyst
Baumgarten, the health care market analyst based in St. Louis Park, is author of the annual “Minnesota Health Market Review,” a round-up of health insurance and hospital performance.
“If (Sanford) said, ‘We’re going to cut back on some of the key functions of an academic health center,’ I think you’d have a revolt or exodus among key faculty, if they feel the university medical center is no longer an environment supportive of their research. It’s not just about diminishing the prestige, but the actual diminishment of those three missions of the academic health center, which are research, training and patient care.”
“There is some notion among hospital CEOs that their company has to grow to $10 billion in annual revenues in order to be a serious competitor. I think both health systems looked at the map of the upper Midwest and saw that several potential partners were already coupling up: Essentia and Marshfield Clinic, Gundersen Health System and Bellin Health. So the possible partner list was getting shorter.”
“Sanford definitely wants to be bigger. This is Sanford’s fourth or fifth attempt at a major hospital deal in the last 10 years, and none of the others were completed. Right before the first Fairview proposed deal, Sanford sought a deal with Allina that was not widely reported, but the doctors at Allina said, ‘Hell, no.’ ”
‘Big Med’ co-author
Lawton Robert Burns is a professor of health care management at the University of Pennsylvania’s Wharton School, and the co-author of “Big Med: Mega-Providers and the High Cost of Health Care in America.”
“This is one of those cross-market hospital mergers economists are now investigating. When the hospitals are in different states, I think there’s less concern about hiking prices and raising costs. The farther apart the hospitals are, the less likely they are to be engaging in anti-competitive conduct.”
“I think the question to be asked is, they tried this 10 years ago, why are they trying it again? What the system executives say is one thing, and what they’re really trying to do is another. The public rationale is rarely the private rationale.”
“(Access to Minnesota’s teaching hospitals) could be a conduit for Sanford to be able to recruit more medical staff because now they have a tie-in to the University of Minnesota Medical School. That could be a rationale — workforce. Hospitals are having trouble finding nurses, so that could be a conduit to increase your nursing supply. But how many nurses from Minneapolis-St. Paul want to go to North Dakota?”