Fairview, HealthEast plan merger into 11-hospital system in Minnesota

Fairview Health Service and HealthEast Care System have announced their intention to combine, creating what is likely the largest health system in the Minneapolis-St. Paul area with $5 billion in annual revenue.

“Bringing Fairview and HealthEast together will create a world-class health system committed to serving our communities and the region,” Fairview President and CEO James Hereford said in a statement. “Our organizations are stronger together. By joining forces, we can expand clinical services and combine our expertise to serve patients where they live and work, giving them access to the widest range of care choices available.”

Under the planned merger, Hereford would lead the organization consisting of 11 hospitals, including the University of Minnesota Medical Center, and 56 primary care clinics.

Like most proposed consolidation moves in healthcare, the participants claim the deal would create efficiencies and savings that will be passed onto patients. Hereford said the merger would “lower costs, create more value and take waste out.”

The Federal Trade Commission (FTC) may see things differently. Similar claims were made about the proposed merger of Advocate Health Care and NorthShore University Health System in Illinois, and the FTC’s victories in court led to the systems scuttling the deal just days after the Fairview-HealthEast merger was announced.

Health industry analyst Allan Baumgarten told the Minneapolis Star-Tribune this deal may be able to pass antitrust standards because of a lack of overlap in the companies’ existing service areas. Fairview’s clinics and hospitals are located to the west and north of HealthEast’s concentration in the St. Paul area. There would also be another local rival remaining: Allina Health, which runs 14 hospitals and brought in $3.8 billion in revenue in 2015.

The combination could control nearly in 31 percent of the hospital revenues in the Twin Cities. Fairview is the larger of the two in terms of workforce, with 26,000 employees compared to HealthEast’s 7,200. Both Hereford and HealthEast President and CEO Kathryn Correia said to the St. Paul Pioneer Press it’s “too early” to predict the merger’s effects on hiring or layoffs, but Hereford suggested any trimming of the workforce would happen among office staff, not clinicians.

Fairview has been seeking mergers for several years. It had been set to merge with the health plan UCare, up until that deal was scrapped on March 2. A 2013 attempt at merging with Sanford Health had been blocked by Minnesota Attorney General Lori Swanson.

HealthEast may have come to the table due to its financial struggles, according to Baumgarten. The system’s bond rating was downgraded by rating service company Fitch in 2016.

“HealthEast needed a partner, needed to take some steps toward expanding its both geographic presence and just the scope of its operations,” Baumgarten said to the Pioneer Press. “HealthEast probably needed this more than Fairview did.”