In a move aimed at preserving the education and research mission of the University’s Academic Health Center, the Board of Regents agreed Monday to sell University Hospital to Fairview Health System for $87.5 million.
The regents voted 9-1 to give University administrators the power to finalize negotiations and sign a contract that would transfer University Hospital and its assets, valued at $150.3 million, to Fairview. When the deal is complete, the University expects to net $70 million.
“This is truly a historic moment,” said University President Nils Hasselmo. “We are creating a new model for the nation in regards to an Academic Health Center and its interaction with the new managed care scene.”
The agreement, which should be finalized by Sept. 30 and implemented Jan. 1, would create a unique public-private hospital called Fairview-University Medical Center.
The merger with Fairview was necessary because of University Hospital’s declining patient load and financial plight. If nothing had been done, University officials say, the hospital would have faced losses of $85.1 million by 1999. The steady decline in patient admissions would have severely threatened the education and research mission of the Academic Health Center, which includes seven health care schools and University Hospital and Clinics.
Regent William Hogan supports the merger, but he said he is concerned that the partnership may jeopardize the research and education mission of the health center.
Frank Cerra, provost of the Academic Health Center, assured the regents that education and research programs would remain strong. “I went through this agreement word by word, line by line,” he said. “I assure you that not only is our academic mission protected, but it is put in a position where it can grow and develop.”
The agreement calls for the University to pay $1 million a month to finance education and research costs at the new medical center during its first 32 months of operation. After that, Fairview and the University would divide these costs in half.
Under the terms of the agreement, the University would hold a majority of seats on the board of trustees that will oversee the medical center and would hold about a third of the seats on Fairview Health System’s board.
Richard Norling, CEO of Fairview Health System, said Fairview would gain University Hospital’s world-class speciality care and referral base by merging. Fairview would also own University Hospital’s building, equipment, several affiliated clinics, a hospital in Hibbing and $20 million in working capital.
Regent William Peterson, secretary-treasurer of the Minnesota AFL-CIO, was the only regent to vote against Monday’s proposal. Peterson said in light of unresolved human resource issues the agreement was premature. “Many of our workers are single moms who are dependent upon their livelihood from this institution. At this point and time, they have no idea what’s going to happen to them.”
Peterson said he felt the decision was rushed and could see no justification for it.
The impact on the hospital’s more than 3,000 employees has yet to be determined. But Ruth Bettendorf, president of the American Federation of State, County and Municipal Employees Local 1164, said the merger will adversely affect more than 1,000 unionized University Hospital employees. AFSCME and Teamsters will lose their union status when the merger is complete. They could also face a decrease in pay and benefits and could lose their jobs, Bettendorf said.
AFSCME and the Teamsters are in the middle of negotiating issues such as hiring priority, wages, pensions and education costs with the University. These human resource issues and a variety of legal details have to be worked out before officials finalize the merger.
The University hired the New York investment banking firm of Bear, Stearns and Co. in February to render an opinion on the merger’s financial viability. Kathleen Costine, senior vice president of the firm, told regents Monday that the agreement is financially sound.