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Fairview, UCare Merger Delayed

Nonprofits continue “due diligence” for potential deal.

In early April, Fairview Health Services and the UCare health plan announced that the two nonprofits, both based in Minneapolis, had signed a letter of intent to merge. But more than four months later, it’s not clear where the potential merger stands. When the proposed deal was announced on April 5, a statement from Fairview and UCare indicated “the two organizations aim to finalize details of the transaction and secure regulatory approvals by mid-summer 2016.”
 
A new joint statement from Fairview and UCare indicates that the two groups are continuing to evaluate the deal, but does not offer a revised timeline: “Our plans to merge provider and payor expertise are continuing beyond the anticipated date, which was originally mid-summer. Additional time is needed to complete financial analyses and to assess structure in light of changes in merger plans between Fairview and UMPhysicians. Fairview and UCare are continuing work to complete due diligence and to fully evaluate the transaction.”
 
A Fairview representative declined any further comment.
 
In early July, the University of Minnesota’s Board of Regents voted to terminate a letter of intent signed in the fall of 2015 to combine Fairview and University of Minnesota Physicians. That prospective deal appeared to unwind over disagreements about governance and the structure of a new combined organization.
 
Fairview is already the sole owner of the PreferredOne, another local health plan. The April announcement touted making UCare a wholly-owned subsidiary of Fairview: “As Fairview’s health plan division, PreferredOne and UCare will work together seamlessly to leverage their unique offerings and better serve the market.”
 
The two health plans are the fourth and fifth largest in Minnesota.
 
According to Fairview’s most recent financial statement, the nonprofit health provider had revenue of $3.87 billion for 2015, an increase of 8.6 percent from 2014. Fairview posted an operating profit of $140.1 million for 2015.
 
Combinations of health care providers and health plans have become a national trend, but one industry observer wonders if Fairview is reassessing its business strategy.
 
“It could mean that Fairview is having second thoughts about doubling down in a sense on its health plan strategy,” said Allan Baumgarten, an independent health care industry analyst and author of the annual Minnesota Health Market Review. “UCare was having some significant financial difficulties coming out of 2015.”
 
Baumgarten said that the proposed merger with Fairview could be seen as a potential “rescue” for UCare.
 
During 2015, UCare lost state contracts for the Medical Assistance and MinnnesotaCare programs, which represented a major chunk of its business. In the wake of losing that business with the state, it announced 245 job cuts in October 2015.

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