The organizations will also continue working on a new definitive agreement to extend their partnership.
The University of Minnesota is moving to repurchase its academic medical center from Fairview Health Services more than 25 years after relinquishing control over it.
A non-binding letter of intent was approved by the university’s board of regents and signed by Fairview and the University of Minnesota Physicians to transfer ownership of the teaching hospital, which would free the medical center from Fairview’s financial struggles and allow the university to decide on its direction going forward.
Additionally, Fairview and the university announced that they will continue working on a new definitive agreement to reshape their affiliation as M Health Fairview in the coming months. In November, Fairview told the university that it did not want to renew the partnership under the current contract due to the financial terms being unsustainable. The contract was set to automatically renew beginning in 2027 if neither party objected by the end of 2023.
The sale of the medical center, which is made up of the East and West Bank campuses, M Health Fairview Masonic Children’s Hospital, and the M Health Fairview Clinics and Surgery Center, gives the organizations a clearer understanding of a potential partnership moving forward.
"This is a critical first step towards a new and reimagined relationship that will better meet the current and future needs of our patients and our community," Fairview Health Services president and CEO James Hereford said in the news release.
According to the letter of intent, the university will pay Fairview 51% of the purchase price after it has been determined. The organizations will share management and governance of the medical center until the end of 2027, pending regulatory review of the sale. The university would then take full ownership of the hospital, giving it control over operational and financial decisions.
Fairview has been in financial trouble with operating losses the past five years, including $315.4 million for 2022. The health system sought relief by proposing a merger with South Dakota-based Sanford Health, but that ultimately failed as the university opposed the transfer of control over the medical center to an out-of-state entity.
As the university and Fairview move towards a transaction, the organizations said the day-to-day operations will remain unchanged and that there are no layoffs planned.
In terms of reaching a new agreement over their partnership, the two sides have set September 30 as the deadline, with an option to extend the negotiation period.
Both sides should be motivated to continue their affiliation through a reworked deal. Fairview’s finances necessitate that the health system adjusts how much support it provides for academic health programs at the university. Meanwhile, keeping the network intact will allow the university to continue bringing in more patients.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
A letter of intent approved by the University of Minnesota’s board of regents outlines a plan to buy back its teaching hospital from Fairview Health Services.
Management of the medical center has been a point of contention between the two organizations in recent years.
The university and Fairview are negotiating a new affiliation agreement after Fairview provided notice that it did not want to renew the current agreement, which expires at the end of 2026.