Duluth-based Essentia Health and Bloomington-based HealthPartners announced on Tuesday the two nonprofits will combine to form one large health system under the HealthPartners name.

The combined organization will include 22 hospitals, more than 135 clinics, and 6,000 clinicians, creating one of the Midwest’s largest nonprofit health systems while extending access across Minnesota and the Upper Midwest (North Dakota and Wisconsin).

The HealthPartners/Essentia Health deal is another tipped-over domino in Minnesota’s healthcare landscape, which already has seen three major systems propose mergers this year. (South Dakota-based Sanford Health officially merged with North Memorial Health in September, and in March, Allina Health and California-based Sutter Health announced a merger.)

“The tone has changed in the resistance of consolidation,” says Tim Sielaff, Allina Health’s former chief medical officer. “Fifteen years ago, it was unthinkable to see this much merger activity.”

Which of the larger hospital systems in the state market hasn’t followed suit? Fairview Health Services. So, the question is: Will Fairview, too, look to partner with another health system?

 “I don’t know why Fairview wouldn’t be looking for a partner” to match the competitiveness in the market, Sielaff says. “I might be surprised if they don’t.”

Fairview did not respond by press time to Twin Cities Business’ question of whether it was seeking a merger.

Is Fairview next?

Fairview has tried to grow across the market before.

Between 2022-23, it negotiated a $14 billion mega-merger with South Dakota’s Sanford Health. But industry leaders’ dissenting voices became too prominent for the deal to continue. The University of Minnesota (which had a past partnership with Fairview) and Attorney General Keith Ellison said they did not want an outside health system buying one of Minnesota’s largest healthcare brands.

Now, the Essentia-HealthPartners news makes the elephant in the room that is Fairview even larger.

Clay Ahrens, a former employee at HealthPartners and member of Allina Health’s board of directors, believes “everyone is looking to partner. Everyone is looking to grow out of acquisitions and mergers.”

Do health systems like Fairview need a merger to survive?

“In reality, one of key drivers for the recent surge in M&A [mergers and acquisitions] activity across the healthcare system is that it gives larger organizations better leverage to negotiate rates and favorable contracts with insurance payers,” Sielaff explains. Healthcare costs continue to rise across the country due in part to reimbursement rates lagging inflation. When a system can negotiate better rates, that helps cover rising operational expenses.

But as organizations merge, competition shrinks, which can raise costs for patients. Last year, a report from U.S. Health and Human Services on horizontal consolidations found that hospital-to-hospital mergers in concentrated markets can raise hospital prices between 6% to 65%. Essentia and HealthPartners said patients should not experience any changes or interruptions to their care or coverage, per a press release.

Potential benefits of HealthPartners merging with another system

Merging organizations have said that M&A will help them achieve economies of scale and better supply-chain pricing. Health systems also mention that mergers create opportunities to allocate more resources toward specialty services, such as telehealth, which improve patient care.

“Right now, [economies of] scale are super important for survival,” Ahrens says. “Systems across the country are racing to become bigger to survive the financial storm ahead. Whether it’s a good idea or not is yet to be seen.”

Of course, Essentia Health and HealthPartners believe their regional partnership provides a greater chance for long-term success.

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HealthPartners CEO Andrea Walsh said on Tuesday during a news conference that the nonprofit health system had previously discussed with Essentia what level of partnership would make the most sense for both parties. Walsh said a full integration would be best for efficiency, rather than sharing select services.

“[HealthPartners] see premiums rising and workforce shortages growing,” she said during the news conference. “We are implementing tech changes that require significant investment. We believe we can combine [systems] to improve affordability.”

HealthPartners also runs a large health insurance business, which will continue, Walsh told the Star Tribune. HealthPartners provides individual, employer, and Medicare plans.

The plan is for the combined health system to expand investment in digital health (such as telehealth services), research, data analytics, and workforce development. Essentia’s research and education programs provide more than 500,000 hours of training each year for healthcare professionals. HealthPartners says it trains more than 600 residents and fellows annually and facilitates hundreds of clinical trials and research studies.

Walsh will lead the new organization while Herman will serve as president of combined clinical care group operations.

Essentia’s facilities will retain the Essentia Health name while operations are integrated until the deal, pending customary regulatory approvals, goes into effect on Jan. 1, 2027.

Ahrens says the Essentia-HealthPartners deal “is different than other mergers. I think this will make both health systems stronger,” because of both systems’ nonprofit mission.