The merger wave in health care continues its surge across Minnesota.

Fairview Health Services and the insurer UCare announced Tuesday they will merge operations, boosting Fairview's insurance arm and moving it closer to a fully integrated organization in an era of rising health care costs.

Consumers likely won't notice a difference right away, but in due time might see a reduction in duplicate billing statements. In the longer term, Fairview hopes that having doctors, insurers and improved patient-tracking data under one roof will enhance patient care and lower costs.

"Hospitals are trying to do more care coordinating, more discharge planning, more patient follow-up," said health care analyst Allan Baumgarten. "The benefits of being a partner or owner of a health plan is that they've already got most of the infrastructure in place and have mastered the flow of data."

UCare is the fourth-largest health plan in Minnesota with about 150,000 enrollees. But it has struggled mightily since losing a bid last year for a valuable state contract to cover people enrolled in government health plans. The insurer lost about 350,000 enrollees across the state, which accounted for about half of its $3 billion revenue in 2014.

Fairview Health Services, the state's fifth-largest nonprofit, is undergoing a swirl of change under interim CEO David Murphy. In addition to the deal with UCare, Fairview also is in the midst of merger talks with the University of Minnesota Physicians, and in July will change its name to M Health.

AP, Star Tribune
Ucare was started by doctors at the University of Minnesota.

With $3.4 billion in revenue in 2014, Fairview has an increasingly diversified portfolio.

It operates six hospitals, nearly 100 primary care and specialty clinics and also operates more than 50 senior housing locations and pharmacies.

Fairview has long had a hand in the insurance businesses, albeit a partial stake in a small player. But in January, Fairview took full ownership of PreferredOne, after propping it up with an $18.75 million loan when the insurer lost a gamble by selling plans on the MNsure exchange that were too low to cover medical costs.

As part of Tuesday's deal, Fairview is creating a new health plan division and UCare will become a wholly owned subsidiary. Jim Eppel will remain as UCare president and CEO, according to a news release.

Neither Fairview nor UCare would make its executives available for an interview.

"This proposed combination mirrors a growing national trend of payer/provider partnerships and has the potential to transform how health care is delivered and financed in Minnesota," Murphy said in a statement.

"Combining forces with Fairview and its extensive, high-quality provider network will enable us to pave the way for a truly value-based and integrated system which better serves Minnesotans now and into the future," Eppel said in the announcement.

Mergers and consolidations have accelerated in Minnesota and across the nation, as pressure mounts to trim waste out of the medical system, which overall accounts for 18 percent of the nation's gross domestic product. With an aging population needing more medical care, the trend is unlikely to abate.

The last notable merger between a Twin Cities insurer and health system came in 2013, when Bloomington-based health plan HealthPartners, which also operates Regions hospital and clinics, merged with the Park Nicollet system of hospitals and clinics.

Part of the push comes from the Affordable Care Act, which penalizes hospitals for excessive readmissions, and broader health reform efforts to move away from a system in which doctors get paid for every individual treatment.

University of Minnesota health care economist Roger Feldman said there's strong potential for the merged operations to bring costs down, though he believes much of the savings can more easily be accomplished through "market mechanisms" and bundled payments for such things as knee replacements.

"This makes sense to me," Feldman said of Fairview's acquisition. "You've got these two health plans that have had some troubles. They might be stronger as a result of being taken over."

The histories of Fairview, the University of Minnesota and UCare have been entwined for decades.

UCare was formed in 1984 by family physicians at the University of Minnesota to ensure that the state's poor received adequate insurance coverage.

Fairview's relationship to the U goes back to 1997, when it took over operation of the financially struggling university hospital. At one point, it enjoyed top billing when the hospital was renamed Fairview-University Medical Center.

Details of the Fairview-UCare merger are not expected to be finalized until midsummer and must pass scrutiny by antitrust regulators.

UCare and PreferredOne offer "complementary portfolios of services," according to UCare's news release.

PreferredOne, the state's fifth-largest health plan, gets most of its business from self-funded employers, including the state of Minnesota. UCare's offerings are focused on individuals eligible for Medicare, medical assistance and MNsure plans.

Jackie Crosby• 612-673-7335