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The $14 billion merger between Sanford Health and Fairview Health Services may be held up over concerns from a top Minnesota regulator.

The nonprofit Midwestern health systems announced a deal in November that they aim to close by March 31. But Minnesota Attorney General Keith Ellison (D) has asked Sioux Falls, South Dakota-based Sanford Health and Minneapolis-based Fairview Health Services to postpone their proposed merger, citing his office’s continuing investigation into its consequences.

The attorney general’s office has not decided “if there will be a cause for legal action,” Chief Deputy Attorney General John Keller said at a community meeting in Worthington, Minnesota, Wednesday, according to his prepared remarks. The state legislature also is planning hearings, he said.

“It is more important to do this right than to do it fast, and that is why the parties’ existing timeline concerns the attorney general’s office,” Keller said. “As a result, we have formally asked the parties to delay the March 31 closing date, and we await their formal response,” Keller said.

Sanford and Fairview say they are working to ensure the attorney general’s office has the information it needs.

“This merger is about doing more for those we serve, and every day we delay merging Sanford and Fairview is a missed opportunity to realize the significant benefits for our patients, our people and the communities we serve. This merger is also about taking critical steps to provide the necessary financial sustainability to serve Minnesota communities for generations to come,” the health systems said in a joint statement.

Sanford and Fairview will need to stay focused on closing their deal while also cooperating with Ellison, said Matthew Anderson, a senior lecturer of health policy and management at the University of Minnesota.

The health systems should act quickly to reduce merger costs, maintain momentum, and mitigate uncertainty among current or potential employees, insurers, vendors and other stakeholders, Anderson said. The companies also needs to move swiftly to get ahead of any other state actions, he said. But they need to maintain good relationships with the state government and the University of Minnesota, where Fairview owns a hospital, he said.

“Throwing sand in the face of the attorney general would be a high-risk move,” Anderson said. “If the AG asked to slow the proposed merger down and the parties say no, does that create the perception that they are trying to hide something?”

The University of Minnesota has expressed concern that the proposed merger is moving too fast and that its interests have not been adequately considered, Keller said. Fairview acquired the M Health Fairview University of Minnesota Medical Center in Minneapolis 26 years ago.

Sanford CEO Bill sought to allay those worries at the meeting in Worthington on Wednesday. According to his prepared remarks, Gassen said the merged company would honor its agreements with the University of Minnesota and its flagship medical center. The current arrangement expires in 2026.

“That leaves more than enough time for the combined system to work with the university on the terms of a repurchase of the medical center it sold to Fairview in 1997, and determine what a future clinical relationship could look like,” Gassen said. “Nothing—I repeat, nothing—will change for the University of Minnesota as a result of this merger.”

There are no plans to close facilities because of the merger Gassen said. If the deal were approved, he would be president and CEO of the combined system and Fairview CEO James Hereford would be co-CEO for a year. The new company would assume the Sanford Health name, operate more than 50 hospitals and employ roughly 80,000 people.

Sanford Health and Fairview Health Services unsuccessfully attempted to merge in 2013 but encountered resistance from Ellison’s predecessor, Lori Swanson (D). Swanson likewise expressed concern about the deal’s effects on the University of Minnesota hospital. Sanford withdrew from the deal in response to the attorney general’s objections.

Both health systems tout financial stability as a key justification for the new deal, but questions remain if it could improve their finances.

Fairview posted operating losses through the first nine months of 2022, according to its most recent financial report, leading to a credit rating downgrade this month. Fairview recorded a $213.8 million operating loss on $4.9 billion of operating revenue, compared with a $120.9 million operating loss on $4.75 billion of operating revenue over the same period the prior year. Its days cash on hand dropped from 158 to 118 over that span. The company, which has $1.57 billion in outstanding debt, also posted annual operating losses in 2019, 2020 and 2021.

While credit rating agencies don’t participate in mergers and acquisition approvals, Moody’s Investors Service downgraded Fairview from A3 to Baa1 and assigned it a negative outlook. The company’s weak operating performance will be difficult to reverse, especially amid high labor and supply costs and relatively low inpatient volumes, according to the Moody’s report. Fairview has a solid market position, good scale, adequate cash-to-debt levels and significant income from its specialty pharmacy operations, but the decline in its investment income will provide less of a buffer from its operating losses, Moody’s wrote.

Sanford reported a $32.8 million operating income on $5.12 billion of operating revenue through the first nine months of 2022. That was down from $284.2 million in operating income on $5.22 billion of revenue over the same period the prior year. Its days cash on hand dropped from 154 to 118 over that span.

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