Merger plans become clearer

by Brian Bakst

More than $150 million in University Hospital and Clinic assets could be transferred to Fairview Health System as part of the proposed merger between the two health care providers.
University officials presented a draft of the merger plan Thursday to the Board of Regents. But many parts of the plan need further revision before they are finally approved.
The University Hospital would receive an $87 million cash payment from Fairview in return for the transferred assets.
University and Fairview officials began planning the merger last November. Through the merger, the University Hospital hopes to gain financial stability and a stable patient base. Fairview is seeking the University Hospital’s world-renowned specialty care services.
Academic Health Center Provost Frank Cerra said the gap between assets transferred and cash received would be filled in other ways. “We are receiving a long-term commitment for support of education and research.”
It is estimated in the report that the University Hospital would have operating losses of $85 million during the first three years of the affiliation.
Three years after the merger, Fairview would pay half of the system’s education and research costs. Cerra said the University’s goal is to cut its current $24 million health care education and research costs in half in three years. Fairview and the University would then each pay $6 million annually.
But during the initial three years of the affiliation, the University would be responsible for nearly three-fourths of the system’s health care education and research costs. Still, Cerra said, the merger is essential to the survival of quality medical education at the University.
“We are at the point where the losses in the hospital are such that the cost of medical education is at the point where we would have to cut research and education in a significant way,” Cerra said.
According to the merger report, the financial transaction could allow the University Hospital to pay off its debt of more than $140 million. In addition, merger officials said, the University would be left with $70 million in unrestricted reserves that administrators would like to have applied to health center restructuring.
But Cerra said he doesn’t want to give the impression that the merger will solve all the problems of the health center.
“We will have to continue to re-engineer the Academic Health Center to function more efficiently,” Cerra said.
Regent Jean Keffeler said she feared the wording of the merger report implied that the $70 million could only go toward the health center. She said she would like the regents to decide the fate of the money.
Human resource issues were also addressed in the report. Senior Vice President for Finance and Operations JoAnne Jackson said 10 percent of the University Hospital employees will receive a pay reduction. But employees would retain their seniority. Also, transitional period salary compensations may be considered to offset extra health care costs that University Hospital employees could face as a result of Fairview’s higher premiums.
None of these proposals have been agreed to by union or non-union employees. If talks between the unions and administrators stall, finalization of the merger could be delayed even longer. An original June deadline has already been missed as a result of slowed negotiations between the University and Fairview.
Regent William Peterson, who is also treasurer of the Minnesota AFL-CIO, reiterated the importance of the human resources clauses of merger documents. If the unions are unhappy with the proposal, he said, “this whole thing could break down.”