The Three Legged Stool: A High Priced Dance In Minnesota Over a Proposed Nonprofit Hospital Merger and An Academic Medical Center
Nonprofit Fairview Hospital is desperate, having suffered a credit downgrade and serious financial losses.
Its really too bad that nonprofit hospitals are so often caricatured as wealthy fat cats sipping champagne and hounding indigent patients for payment from those patients’ last dime. Some deserve it, but I don’t think these two merger-ists do. The caricature, by the way, resulted in small part in one of the biggest revolutions in health care when Obama pushed through the Affordable Care Act. Now nonprofit hospitals have to more thoroughly justify their existence, though the jury is still out as to whether requiring them to quantify “community benefit” has made a real difference. The proposed merger in South Dakota and Minnesota perhaps shows that the caricature is not always accurate. That merger seems driven by sheer desperation, at least on the part of two of the three participants. The Youtube video above explains some of the financial imperatives.
We have previously blogged about a big proposed merger between a South Dakota nonprofit hospital (Sanford) and a Minnesota nonprofit (Fairview). The proposed $14 billion merger, impacting 60 hospitals, faced serious headwinds when it was first proposed ten years ago and, as a result, was tabled. The parties revived the proposal this year and it is still facing strong headwinds. First, the University of Minnesota (the third leg in all of this) has a longstanding affiliation with Fairview, and for that reason opposes the merger. It fears the merger will compromise its academic healthcare mission carried out largely in association with Fairview Hospital System for the last 30 years almost. UM is so worried that it has asked the state for a billion dollars to buy one of Fairview’s Hospitals before the merger. UM wants to have ensure access to the hospital for its teaching and research mission. The University sold that hospital to Fairview many moons ago when the hospital was hemorrhaging cash. But as part of that earlier transaction, Fairview and UM entered into an affiliation agreement to allow UM to continue its teaching and research mission. The $87.5 million Fairview paid the University back then no doubt provided a needed infusion of cash to UM and shifted a good deal of operating risk to Fairview. Now Fairview is struggling and looking for a white knight, the role apparently set for Sanford Hospital.
The first transaction sounds like the exempt sale leasebacks in vogue back in the day. Except here, the “buyer/lessor” and “seller/lessee” are both exempt. So we had a sale-leaseback, a joint operating agreement facilitating UMN’s teaching and research mission, a proposed and tabled merger, now another offer to buy (and probably another leaseback with another joint operating agreement), and another merger proposal requiring a whole ‘nother round of weeping and gnashing of teeth. The point I am clumsily making is that here we have two admittedly charitable hospitals — in the agape sense of the word, as far as I can tell — and we are making them jump through all sorts of expensive and inefficient hoops. They seem like thrashing fish on a pier desperately gasping for water’s oxygen. I get the “antitrust and decreasing community benefit at higher prices concern” (discussed below) but if Fairview doesn’t survive, and the University can’t train doctors and search for cures . . . it just seems like the baby getting tossed with the bathwater. But that’s just me
Still, the Minnesota Nurses Association announced its opposition to the merger earlier this week. The association points to data showing that hospital mergers often result in market consolidation, higher prices, and reduced services. Those assertions are backed by MNA’s impressively intimidating report. In the meantime, and as we previously blogged, there is a move afoot in Congress to subject nonprofit hospital mergers to the antitrust laws designed to prevent the harm MNA alleges will result from the merger. UM has recently softened its opposition, by the way, but only on the condition that Fairview sell UM’s formerly owned teaching hospital back to UM. UM is asking for $1 billion bucks from the legislature to fund the reacquisition. Three hundred million would reacquire the hospital and $700 million would be used to fund operating costs for 90 days. For their parts, Sanford and Fairview support UMN’s request for the money and have apparently agreed that the teaching hospital will be sold back to the University in exchange for the University withdrawing its opposition to the merger.
The antitrust hysterics may yet prevail, but when all is said and done those two nonprofit fish will still be thrashing about on the pier. There has got to be a better way.
darryll jones