Road to merger ends after 6 years

by Jessica Steeno

University officials and Fairview Health System representatives will sign several documents today finalizing the merger between the private hospital and the University of Minnesota Hospital and Clinics. The hospital has been renamed Fairview-University Medical Center.
The merger was official as of Jan. 1, 1997. University and Fairview representatives cite the holidays and a large amount of paperwork as reasons why the final papers were not signed before the merger took place.
The signing represents the end of a six-year odyssey for the University and its Hospital.
Financial crisis

In 1991, the University of Minnesota Hospital and Clinics’ Board of Governors, faced with a declining patient base, identified the need to develop networks with physician groups and hospitals.
In 1992, the Board of Regents approved a plan for the health center to develop affiliations with other hospitals in the Twin Cities area.
In June of 1993, the boards of directors at the University hospital and Fairview approved the merger of the neonatal and birthing services of the two hospitals. University staff moved to Fairview later that year. Academic Health Center Provost Frank Cerra said the affiliation may have affected the University’s decision to merge with Fairview.
“I think it definitely was involved because it worked out extremely well,” Cerra said.
The entire hospital had faced financial challenges for some time, and in 1993 a task force was assigned to identify options for the hospital to deal with its financial problems and need for more patients.
The task force identified several options for the health center. The first was to find a way to remain a lone institution, which would have required increasing the hospital’s patient volume and lessening its financial burdens.
“We asked, ‘Can we downsize the hospital and still compete in the marketplace?'” Cerra said. “When you only have five percent of the market, that doesn’t work. We also asked if we could increase our market share so we could get up to some point where the patient access problems weren’t problems anymore. We just didn’t have the resources to do that. It’s terribly expensive to increase market share.”
The second option was to close the University Hospital and contract with other health care systems to provide patients for medical education.
“Closing the hospital had two major drawbacks,” Cerra said. “One is that we would then have to go to an outside system to perform our education and research out in the community, and it just doesn’t work. The second is, to close the hospital would cost us millions and millions of dollars. You can’t just close it. Then we would have spent millions of dollars and not have a hospital.”
The third option the task force identified was to affiliate with an existing health care network to stabilize the University Hospital’s patient base and provide financial security to the hospital.
The regents and legal and financial consultants searched for a health system willing to affiliate itself with the hospital. Following negotiations with several major health providers, the regents signed a Letter of Intent to merge with Fairview on Nov. 16, 1995.
Meanwhile, other problems were plaguing the hospital. The Medical School was put on probation by the National Institutes of Health in August of 1995 in response to improprieties in the ALG transplant drug program.
On Jan. 12, 1996, the University and Fairview took the next step, entering into a Memorandum of Understanding. The memorandum stated the intent of the merger, which was to create a more efficient set of programs than had previously existed at the University Hospital while preserving the education and research mission of the AHC.
To many University Administrators this seemed to be the hospital’s best option. From 1992 to 1996 the hospital’s patient admissions had declined 14 percent, and admissions were expected to continue to shrink until at least the end of the century.
“We worked with most of the health systems in a very intense series of negotiations,” Cerra said. “Then Fairview came into the picture and it worked out very well, principally because we have a mesh of missions. The missions are the same.”
Although University administrators have said the merger will not solve all the financial problems of the Academic Health Center, they also say the merger will broaden the University hospital’s patient base and help save an ailing medical school.
Hospital continuity

The effects of the merger on the day-to-day operations at the new Fairview-University Medical Center will be minimal, administrators say. The major effects will be increased financial stability and a broadened patient base.
As a part of the deal the Academic Health Center sold the main University hospital building, its parking ramp, equipment, and several affiliated clinics to Fairview. Fairview agreed to pay the University $87.5 million for those assets.
In addition, the University agreed to give Fairview $20 million in working capital. This money has been earmarked to start up and run the new medical center.
Another change that will eventually occur will be the consolidation of certain services already offered at Fairview. Those changes will take place slowly, though, over a period as long as two years.
“Does it make sense to do a procedure in both places?” said Jean Tracy, Head of Public Relations for Fairview. “If it doesn’t you just do it at one. That will evolve over years because you don’t just consolidate and change services that quickly. You have to maintain your patient care services, and that is what we are in the business of doing. We have to assure that those services are maintained and that the patients are cared for.”
An issue many thought would face the merging hospitals was state and federal antitrust laws preventing companies from gaining too much dominance in the marketplace.
State Attorney General Hubert Humphrey III called on the University and Fairview in November to seek exemption from the antitrust laws. The University declined, stating that they were confident that the merger would not violate state or federal antitrust laws.
“There isn’t an antitrust issue,” Cerra said. Seeking an antitrust exemption would have resulted in increased public scrutiny of both the merger itself and the practices of the University and Fairview.
The hospital will be governed by a new Board of Trustees. The board consists of seven University-appointed members and seven members appointed by Fairview. In addition, the dean of the University’s medical school and the co-chiefs of staff at the Fairview-University Medical Center will serve as board members.
Peter Rapp, the former Director of the University Hospital, will continue his role as director of the new medical center.
Workers protest

The changes within the new health center that have been the most controversial have been the effects it has had on University employees who transferred to Fairview.
Fairview and the University have both indicated that some workers might be laid off eventually as a part of the consolidation of services.
“We have been very open about the possibility of layoffs,” Tracy said. “We don’t know yet how many there will be, but we’re hoping to minimize them. Retraining will also be available to people, so if they get laid off they can do other jobs within the Fairview system.”
Some former employees of the University Hospital and Clinics have sought jobs elsewhere within the University system, and still others have chosen to transfer to the new medical center. For members of the American Federation of State, County and Municipal Employees who choose not to transfer, a severance package will be available, but that was not a part of the University’s original plans. Before the union filed a lawsuit against the University in November, demanding severance pay for workers laid off after the merger, the University took the position that employees offered new jobs at Fairview were not being laid off.
During bargaining, however, the University decided to give the severance package to employees who chose not to go to Fairview. After that, the union dropped the lawsuit.
“AFSCME did a survey and there are some people in their unit that were interested in being laid off,” said University Associate Vice President of Human Resources Carol Carrier. “To the extent that we can accommodate those individuals, and I’m sure that we can, there will be some layoff notices issued. Then those people would be able to receive the normal severance package just like any other laid-off employee would receive.”
The union reached an agreement with the University regarding the terms of their transition, including the issue of severance pay, the week before the merger.
“We’re just settling,” said Ruth Bettendorf, a former president of AFSCME local 1164. “We don’t have any choice. We’ve never supported this merger. We’ve never felt that this was the correct answer for the problems of the University Hospital.”
About 10 percent of the employees who transferred to the new health center took cuts in pay, and all of them suffered a reduction in benefits.
The adjusted pay rates are based on Fairview’s current pay scale, Tracy said. About five percent of the workers received a pay increase based on the same pay scale.
Health insurance premiums increased for workers who made the transition to Fairview, and their paid time off has been reduced as well. This was unsettling for many workers, and were among the issues organized labor groups disagreed with the University about during an exhaustive series of negotiations. The union that held out on reaching an agreement on the terms of the merger the longest was AFSCME, which represented 1,100 University hospital employees.
“We’re losing our sick time,” Bettendorf said. “We have no sick time, (it’s all) vacation and holidays. That’s what PTO (paid time off) is.”
Under Fairview’s paid-time-off system, workers accrue a certain amount of vacation time and time off for holidays, and can use them as they wish. Time not used is stored and can be drawn upon later.
“They try and tell you it’s a bank and you can use your sick time and your vacation time, but in essence they’re cutting your rate down to vacation level and eliminating any sick time so all your PTO, which is your vacation and holiday accrual, will be used for sick time as well,” she said. “You’re losing all your sick time.”
University administrators say they tried to make the transition as painless as possible for the workers, but some people were bound to come away unhappy,
“The key thing is here that we’re going to want a work force that is really very confident and very content and focused on this mission too, so it’s important to me that we, as rapidly as we can, connect with all the workers,” said Rapp. “I have a lot of confidence that people, as they understand where we’re going to try to go, that they’ll be excited about it, too.”
Rapp is optimistic that the community will be satisfied with the way the merger turns out as well.
“I think it’s going to take the community a little while to be reassured that the University and the Academic Health Center are still major contributing variables to the state, and that the Academic Health Center was actually strengthened by all this, and that good things are happening,” he said. “It’s going to take people a little while to see that.”
To address concerns workers and the general public have expressed during the course of the merger, the state Legislature has tentatively planned to hold a hearing when they start their new session.
Sen. James Metzen, DFL-St. Paul, chair of the Governmental Operations Committee, said the hearing is not intended to undermine the merger.
“We’d just get an update on where they are and where their negotiating with employees is,” he said.
Metzen said he had received several calls from unhappy employees. He also wants to make sure a transition fund to aid workers who are taking pay cuts and reductions in benefits, is being used effectively. In addition to 5.5 million from the University, the state has contributed nearly $2 million to the fund,
“We’d like to see if things are going where the Legislature thought they would,” Metzen said.