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Our Take: Sanford ends proposal to merge with Fairview based on lack of support by ‘certain stakeholders’

Jul 31, 2023

The board of trustees at Sanford Health decided on Thursday to end the merger process the health system engaged in last fall with Fairview Health Services.

Sanford Health’s CEO, Bill Gassen, said in a news release: “The significant benefits we identified for a combined system with Fairview Health Services compelled us to exhaust all potential pathways to completing our proposed merger. However, without support for this transaction from certain Minnesota stakeholders, we have determined it is in the best interest of Sanford Health to discontinue the merger process.

“This is the right decision for our patients and residents, our people, and the communities we serve. … We are extremely grateful for the support we have received from many Minnesotans who share our vision to invest in health care delivery and enhance access to care in both rural and urban areas,” he added.

Gassen did not specify who the “certain Minnesota stakeholders” were, but several groups have expressed opposition to the proposed deal, including union leaders and state legislators.

The main sticking point, however, seems to have been concerns about Sanford, which is based in Sioux Falls, N.D., assuming control of the University of Minnesota medical center’s teaching hospital. Fairview’s relationship with the University of Minnesota was an issue in the health systems’ first attempt to merge a decade ago. 

The university proposed a plan in January to reacquire the medical center and other facilities on its campus from Fairview. In March, both Sanford and Fairview endorsed returning the medical center to the university, though they disagreed with the university about how that should be done. 

Minnesota’s attorney general’s office has been investigating the potential impact of the planned merger for months, and the health systems postponed their intended closing date multiple times to allow more time for the investigation.  

Sanford Health is one of the largest health systems in the Upper Midwest, with 47 medical centers, 44,000 employees, a network of clinics, senior care locations, skilled nursing and rehabilitation facilities, and a health plan.

Based in Minneapolis, Fairview Health has nearly a dozen hospital campuses in Minnesota, including the M Health Fairview University of Minnesota Medical Center, and more than 30,000 employees. 

Their merger would have created a combined health system valued at approximately $14 billion.

Our Take: This is the second time now that Sanford has broken off negotiations to merge with Fairview. Our guess is that the board of trustees’ decision on Thursday to call it quits caught Fairview by surprise. 

MPR News reported that Fairview said last Tuesday it remained “confident in the benefits of the merger for our people, patients, and communities and our shared vision to advance world-class health care for all we serve.” 

After the news broke that Sanford was pulling the plug on the merger, Fairview CEO James Hereford acknowledged that the deal didn’t have the necessary support from “certain stakeholders” but did not elaborate, according to MPR News. 

This is Sanford’s third failed merger attempt in less than five years. In 2019, the health system announced an intended $11 billion merger with UnityPoint Health, one of Iowa’s largest health systems. When that didn’t come to pass, Sanford tried a year later to merge with Salt Lake City-based Intermountain Healthcare. That deal also fell through.

Intermountain Health merged with Colorado-based SCL Health in April 2022, creating the 11th-largest nonprofit health system in the U.S. The combined system, valued at $12 billion, spans seven states, with 33 hospitals, 385 clinics, and 59,000 caregivers. It also has a health plan that serves members in Utah and Idaho. 

Earlier this year, UnityPoint, which has 20 regional hospitals, 19 affiliated community network hospitals, and more than 275 clinics located throughout Iowa, Illinois, and Wisconsin, signed a letter of intent to merge with Albuquerque, N.M.-based Presbyterian Healthcare Services. If that deal is successful, the resulting entity would be valued at approximately $11 billion.

Will Sanford Health seek another merger? Count on it. 

What else you need to know
Amazon Web Services has launched an artificial intelligence-based service called AWS HealthScribe. According to the announcement, software providers can use HealthScribe to build clinical applications that use speech recognition and generative AI to automatically create transcripts of physician-patient discussions, extract key details such as medical terms and medications, and create summaries of the discussions, which clinicians can review for accuracy and then upload to patients’ electronic health records. HealthScribe is HIPAA-eligible, Amazon noted. Initially, HealthScribe will be available for use in general medicine and orthopedics. 3M Health Information Systems, Babylon Health, and ScribeEMR are among the first companies to use the new service. 

Asset management firm TPG agreed to pay $1.4 billion to acquire Nextech, a company based in Forth Worth, Texas, that provides electronic medical record and practice management software to specialty physician practices. Thomas H. Lee Partners currently owns Nextech, which does business with a network of more than 11,000 physicians and more than 60,000 clinics. If the deal passes regulatory review and customary closing conditions are met, the acquisition is expected to close in the third quarter. The transaction will be conducted by TPG’s private equity platform, TPC Capital. Last fall, TPG Capital acquired ClaimsXten, a claims-editing software company now known as Lyric, from Change Healthcare for $2.2 billion as part of the deal UnitedHealth Group’s Optum made to acquire Change Healthcare. 

Two Cigna plan members in California are suing the insurer, alleging the company used a computer algorithm to automatically reject hundreds of thousands of claims without conducting necessary reviews, The Associated Press reported. The class-action lawsuit, filed in federal court last week in Sacramento, alleges that Cigna used an algorithm called PxDx, which stands for procedure to diagnosis, to determine whether the claims met certain requirements. According to the lawsuit, an average of only 1.2 seconds was spent on each review, and Cigna’s doctors then signed off on the denials. California law requires insurers to conduct “thorough, fair, and objective investigation” of claims submitted for medical expenses. The lawsuit also contends that Cigna denied more than 300,000 payment claims during a two-month period last year. “Relying on the PxDx system, Cigna’s doctors instantly reject claims on medical grounds without ever opening patient files, leaving thousands of patients effectively without coverage and with unexpected bills,” the lawsuit states. 

Cigna issued a press release Thursday defending its use of PxDx, saying it uses the PxDx process “to expedite payments to health care clinicians for a small number of relatively low-cost procedures.” The company said the PxDx process does not use artificial intelligence or an algorithm, that the claims denied through the PxDx process represent less than 1% of the company’s total volume of claims, and that most members “do not experience any additional costs if their claim is denied via PxDx.”

On Friday, Biogen announced that it had entered into a definitive agreement to acquire Plano, Texas-based Reata Pharmaceuticals for $172.50 per share. The proposed deal values Reata at approximately $7.3 billion. The FDA approved Reata’s Skyclarys (omaveloxolone) in February, making it the first drug in the 21-year-old company’s history to receive FDA approval and the first treatment the FDA has approved for Friedreich’s ataxia, an “ultra-rare,” inherited, degenerative neuromuscular disorder. “This is a unique opportunity for Biogen to bolster our near-term growth trajectory,” Biogen’s CEO, Christopher Viehbacher, said. Both companies’ boards have approved the proposed transaction, which is expected to close by year-end. The deal is subject to customary closing conditions and approval by Reata’s shareholders.  

Earlier in the week, Biogen revealed that it would be reducing its workforce by an estimated 1,000 employees as part of the company’s new “Fit for Growth” program. The cost-cutting initiative is expected to generate savings of approximately $1 billion in gross operating expenses, with $300 million of that total pegged for future product launches and R&D endeavors.  

Committees in both the Senate and House advanced legislation crafted to reform business practices that pharmacy benefit managers commonly use to increase their profits. On Thursday, the Senate Finance Committee passed the Modernizing and Ensuring PBM Accountability Act in a bipartisan vote of 26-1, and the House Ways and Means Committee approved the Health Care Price Transparency Act of 2023 along party lines.


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