Hospital merger going well

Andrew Tellijohn

Admissions are up, the debt has disappeared and optimism reigns supreme as the University Hospital’s merger with Fairview Health Systems heads into its second year.
One year after the merger, the partnership is showing signs of reduced expenses and increased patient flow. In addition, it is being looked to as a model for struggling medical schools throughout the country, top administration officials told the Board of Regents in December.
“Minnesota is on the peak of this and everybody is looking to us to find out how to solve it,” said Frank Cerra, senior vice president for the Academic Health Center.
For a number of years, University Hospital was suffering. Patient admissions were lagging. Funding was becoming more difficult to obtain. And without some action, the University faced a $20 million projected annual deficit.
In an effort to alleviate financial shortfalls, the hospital had merged with several smaller clinics, including two in Hibbing, Minn., and Red Wing, Minn. However Regent Thomas Reagan said they just didn’t have enough resources to make enough of a dent.
So the board turned its attention toward bigger projects. In November 1995, then-Academic Health Center Provost William Brody announced that merger talks were underway. Brody declined requests for an interview.
Negotiations for the Fairview-University merger took nearly two years to complete. In January 1996, the board voted to support the merger as plans were first introduced. On July 31, 1996, the regents agreed to sell the hospital to Fairview for $87.5 million. The merger was finalized on Jan. 6, 1997, when all of the paperwork was finally unveiled and signed.
Although there were several concerns, people also had reason to believe this was the right step for both organizations to take, said Richard A. Norling, chief executive officer at Fairview Health Systems when the merger took place.
The quality with which each entity practices its specialties and the role they can play in furthering each others’ goals make them a perfect match, he said.
“My read of it is Fairview is a top-notch, community-based nonprofit health system and the University is a top-notch medical school and research site,” he said. “For Fairview and the University to be successful in the long term, what’s got to be found is the proper blend of all that.”
“When you look at all the pieces and you say, ‘How are you doing?’ I say they’re doing great,” he added.
Reagan said the merger has nearly erased what was more than a $1 million-per-month loser. This year hospital officials project they will break even.
And Fairview’s acting CEO William Maxwell said that although the partnership is just slightly behind their projected budget, Fairview Systems had its second best year ever in 1997.
The success didn’t come without much effort, however. Because Fairview’s main objective had been patient care and the University concerned itself with teaching and research, the merging staffs had different priorities. Officials insist that while integration of the staffs hasn’t fully happened yet, they are optimistic that progress will be made.
“That’s true in any mergers, but it’s particularly true where you have this large culture difference,” said Peter Rapp, senior vice president and administrator for Fairview-University Medical Center. “That’s work yet to be finished.”
In order to facilitate the goal of having everyone on the same page, co-leaders from each entity have been assigned to head groups. Finding common goals and levels of satisfaction are among the main goals for the second year and beyond, Rapp added.
While attempting to mesh the staffs, the University was also working to ensure they didn’t diminish the stature of their educational and research activities. Reagan said going into the merger, protecting that was the board’s main concern. So far he’s satisfied.
“It appears that we worked out a good enough contract, so that’s being very well protected at this time,” he said.
The early days of the partnership were also marred by controversy surrounding union representation of the hospital employees. Because the merger put the University under a private company’s ownership, employees were subject to federal rather than state laws.
Fairview originally dissolved the American Federation of State, County and Municipal Employees, preferring instead to deal directly with workers. A May election restored AFSCME representation to two of three employee units.
“There was a lot of angst in the atmosphere early in the year over that issue,” Rapp said. “I think people kept their heads, we went through it, we had an election, the employees spoke their minds, and we came out with a clear answer. That doesn’t mean everybody was happy with it. But we came up with a clear answer.”
Outside of those issues, however, feedback on the merger has been sparkling.
“I have to say what a great sense of relief this is,” said Regent H. Bryan Neel III after Cerra’s presentation. “This is a tremendous accomplishment.”
“To see it come together as it did, in the span of time that it did, that surprised me,” Reagan added.
In the past year, the combination received a positive feedback on the quality of their care environment and care services from the Joint Commission on Accreditation of Healthcare Organizations Survey. In addition, monthly admissions increased 1.6 percent and the average length of patients’ stays decreased nearly a half day.
Cerra also emphasized the positive impact the merger had upon students. Computer access, on-call room security and teaching rotations have improved, he said. And work is underway for enhancing educational opportunities in many areas, such as the pharmacy training program.
“We’re now in a position to actually actualize that potential in the next two years,” he said.
Theodore Thompson, pediatrics professor and medical director at the University, said in a previous Daily article that he felt the University needed to find a way to increase their clinical work. Under the merger, he said, the mission has been much more focused.
The merger has also allowed the University and Fairview to become more competitive cost-wise, Rapp said. And while the work isn’t finished, he said even more progress is being made.
Moving into the second year of the merger, the plan is to continue furthering the partnership. Improving services for non-in patients, continuing to further the staff relations and being more specific and explicit with the financial structures are all goals for the upcoming year.
“Whatever challenges are before us, this was a good decision for the University of Minnesota,” Cerra said.