Two Twin Cities hospital systems to merge

By David Montgomery
St. Paul Pioneer Press

One of the eastern Twin Cities key hospital systems, HealthEast, has agreed to merge with competitor Fairview Health Services.

If the merger goes through as planned, it would likely create the largest health system in the Twin Cities with hospitals and clinics throughout the metro. It will also connect HealthEast patients with the University of Minnesota’s teaching hospital.

“This combination is a great way to continue to live our mission and a vision, but to do it in a way that’s bolder, to do it with a greater partner, one that really lets us create better value, more value for our patients in the East Metro,” said Kathryn Correia, HealthEast’s president and CEO.

HealthEast operates Bethesda Hospital, St. John’s Hospital, St. Joseph’s Hospital and Woodwinds Health Campus, as well as 14 primary care clinics. It has around 7,200 employees and took in 8.3 percent of Twin Cities hospital revenues, according to health industry analyst Allan Baumgarten.

Fairview is considerably larger, with 26,000 employees and 22.6 percent of Twin Cities hospital revenues. The combined entity will be run by Fairview’s president and CEO James Hereford, and most of its board members will come from Fairview.

“Our organizations are stronger together,” Hereford said in a statement announcing the merger. “By joining forces, we can expand clinical services and combine our expertise to serve patients where they live and work.”

Hereford and Correia said they haven’t decided what the new name of the combined entity will be.

To be finalized, the merger needs to pass legal muster and be approved by regulators.

In a statement, the two companies predicted that approval would come as soon as this spring.

It’s not a certainty that the deal will be finalized. Fairview has come close to several mergers in recent years, including a  2015 deal with the University of Minnesota Physicians system that  fell apart this year despite both sides signing a letter of intent.

The chief executives of both the Fairview and HealthEast systems said it is “too early” to say whether there will be layoffs or additional hiring in the combined system.

If layoffs do come, the leaders suggested the job cuts wouldn’t be likely to affect people involved in patient care.
“The likelihood of us reducing down the number of people in direct care is relatively low,” Hereford said. “We will be looking at back-office functions and understanding what the synergies are and opportunities.”

HealthEast is headquartered off University Avenue in the Midway neighborhood of St. Paul. It’s the only major hospital provider based in the East Metro. Fairview’s corporate headquarters is in Minneapolis.

HealthEast was one of the smaller systems in the region and had been losing patients in recent years.

In 2016 the rating service Fitch  downgraded HealthEast’s bond rating, noting that the hospital chain’s profits had “underperformed Fitch’s expectations.” This profitability and some long-term investments in hiring more doctors had contributed to relatively low levels of reserves.

“HealthEast needed a partner, needed to take some steps toward expanding its both geographic presence and just the scope of its operations,” Baumgarten said. “HealthEast probably needed this more than Fairview did.”

Fairview and HealthEast have largely complementary networks, with HealthEast focused in the East Metro and Fairview in most other parts of the region.

Baumgarten said the merger could benefit patients.

“You have a clearer path to some of the specialists who are practicing, particularly at the University of Minnesota,” Baumgarten said. “I think that’s good news for patients of HealthEast.”