Two Hospital Merger Deals Collapse

When merger talks collapse between two health systems both sides usually take pains to insist that the process was pleasant and the parting was amicable.

So it came as a surprise that Sanford Health would offer barbed remarks after announcing that its months-long confidential merger talks with Minneapolis-based Fairview Health Services ended with no deal in place.

"Sanford Health has a philosophical policy of 'only going where we are invited,'" CEO Kelby K. Krabbenhoft said in prepared remarks.

"It seems as though the incredibly positive beginnings to discussions of the merger of Fairview Health and Sanford Health, has turned into a situation that finds us being unwelcome by some interested parties and key stakeholders of our proposed merger partner. It is inconceivable and unacceptable to me that we would ever propose a merger without the affirmation of these parties."

Krabbenhoft's ire appeared to be directed at Minnesota Attorney General Lori Swanson, who at a public hearing she called on April 7, grilled executives from the sprawling South Dakota-based health system on the private negotiations and questioned their motives. Swanson had already detailed her concerns about the merger talks in a March 26 letter to Chuck Mooty, Fairview's interim CEO and board chairman.

"I am troubled that a small group of people, apparently composed of a portion of the Fairview Board of Directors and representatives of an out-of-state entity, would conduct private discussions without the benefit of the public's input regarding a matter of such sweeping consequences…" Swanson said in the letter.

Krabbenhoft in his remarks characterized the proposal as not some out-of-state takeover but, as a "merger of equals."

"It was never suggested that either party was 'acquiring or controlling' the other. Those terms were never contemplated because they would be rejected on their face as unacceptable to each of these historic, charitable, and successful organizations," he said. "Nonetheless, this misperception has been created to serve an agenda that undermines the good faith and emerging trust that is essential in any contemplated merger of this sort."

Mooty, in prepared remarks said he understood why Sanford "would choose to step back at this time, but the news comes as a disappointment."

"Our initial findings about a Fairview/Sanford partnership were positive and the Fairview Board was committed to fully understanding its potential benefit to our patients and communities," he said. "However, we respect Sanford's decision and our Board's current assessment of a Sanford partnership will stop."    

Krabbenhoft said he made the decision to withdraw because he was "concerned that the good reputation of Sanford may be injured by a process that only intended the highest of ideals and integrity for what we believed to be a compelling solution to the challenges facing healthcare delivery today and in the future."

He said Sanford would come back to the negotiations only if Fairview and the University of Minnesota "have sufficiently resolved issues within their relationship and secured a positive understanding by Attorney General Swanson of their intentions and plans. Until those conditions seem resolved it appears prudent for Sanford to disengage from this effort and will do so immediately."

Mooty said in his remarks that Fairview would now concentrate on strengthening its existing partnership with the University of Minnesota. "Clearly, we need to ensure strategic alignment between us before we can advance new ideas for the future. However, we feel it is not the time to discuss any proposal that involves the University acquiring Fairview. As a result, our work to evaluate that proposal will stop."

CHI, PeaceHealth Merger Talks Fold

Catholic Health Initiatives and Peace Health have announced that their months of negotiations to form a unified integrated regional health system in the Pacific Northwest have ended with no deal in place.

The two Catholic health systems had signed a nonbinding agreement in mid-August to create the partnership but they said in a joint media release that they "were unable to develop an integrated model that would provide the desired benefits and serve the best interests of both organizations. CHI and PeaceHealth will remain actively engaged in exploring other opportunities to work together to strengthen their respective ministries in the Pacific Northwest."

"Bringing together two large health systems is a very complex and challenging process," John DiCola, CHI's senior vice president of strategy and business development said in an interview.

"It was also a very innovative model," DiCola says. "Though it was a 50-50 joint venture, the new operation would consist of 100% of PeaceHealth's organization and CHI would contribute, if you will, 20% of its organization – the hospitals in Washington and Oregon. We just could not integrate this in the way felt would provide the desired benefits and serve the best interests of both organization and our communities.

"We spend a lot of time trying to work this out. That's the purpose of the due diligence process. CHI and PeaceHealth had good discussions. We agreed on a lot of issues, but all of the pieces have to fit, not just a few of them."

"We will keep the door open, keep the dialogue going; we had good discussions and we maintain a good relationship and have a lot of respect for each other."

Peter Adler, chief strategy officer at PeaceHealth, declined to provide specifics on where the breakdowns occurred in the negotiations, but he said the two health systems ended the talks amicably and by mutual agreement.