The facility is key to the U keeping medical school accreditation. For Fairview, the project promises market share growth in a hot area: day surgeries and outpatient specialty clinics.
The University of Minnesota and Fairview Health Services have agreed to build a $182 million medical center in southeast Minneapolis, advancing a partnership that began when the U sold its financially distressed hospital to Fairview in 1997.
For the U, the care center will dash fears of losing medical school accreditation over a lack of modern facilities for its doctors and students. For Fairview, the project promises market share growth in a hot area: day surgeries and outpatient specialty clinics.
The Board of Regents is expected to finalize an agreement Friday that will authorize $132 million in university borrowing to build the four-story care center on campus. The investment will unleash a joint project with Fairview that has been stalled since at least 2008, mainly over economic issues. The rest of the money will come from other sources.
"Rather than let this thing continue to fester and not get done, the university stepped up to be the banker because it's so important to our faculty and our students,'' said Richard Pfutzenreuter III, the U's chief financial officer.
In a parallel step, the U and its physician group, University of Minnesota Physicians, will forge a new affiliation agreement with Fairview that envisions more revenue and authority for the university and its doctors. Part of the regents' discussion on Friday will center on a framework for those talks, which will amend a 99-year affiliation agreement struck when Fairview bought the U's hospital.
"We'll become more integrated, but not fully merged,'' Regent John Frobenius said.
Dr. Bobbi Daniels, CEO of the U's physician group, said a "co-management model'' is envisioned, including Fairview-owned University of Minnesota Amplatz Children's Hospital.
Fairview executive Carolyn Wilson, president of University of Minnesota Medical Center Fairview, said the project is a "wonderful opportunity to advance our shared goals of providing leading-edge patient care, developing new knowledge and clinical breakthroughs and educating tomorrow's health care providers.''
Design work will begin immediately for the so-called Ambulatory Care Center on a block of university-owned land very close to the Huron Boulevard exit on the north side of Interstate 94. The proposed surgery center, combined with many specialty clinics, will replace a patchwork of overcrowded and outdated campus facilities anchored by the Phillips Wangensteen Building.
A university document says the current facilities lack space for teaching, research and family participation in care. The existing buildings handle three times their originally projected patient volume and are seen as a detriment to recruiting new faculty.
"Without adequate facilities in which to train, accreditation is at risk,'' the document said.
Frobenius, a retired hospital administrator, said a new care center also is needed to improve the university's capacity to care for the area's most complex patients, those who require highly specialized care.
Friday's regents' meeting could mark a deepening of the U's relationship with Fairview at a time when Fairview faces allegations of patient privacy violations and illegal collection tactics stemming from a relationship with Accretive Health Inc. of Chicago. A scathing report by Minnesota Attorney General Lori Swanson has triggered inquiries by members of Congress and federal health regulators.
Asked if the controversy is a concern among regents, Frobenius said, "We'll see if that comes up in our discussions.''
Fairview's board of directors includes three high-ranking U of M Medical School officials, including Daniels. She said the 99-year affiliation agreement ensures that Fairview will remain an important partner at the U.
"That said, we recognize the sensitive nature of the situation and share the concerns of Fairview leadership about the alleged practices of Accretive,'' Daniels said.
Pfutzenreuter said a binding letter of intent with Fairview requires that the university be reimbursed for design expenses and other preliminary costs if Fairview is unable to go forward with the project. Construction is expected to start in the fall of 2013 and the facility would open no later than Jan. 1, 2016.
Minnesota Masonic Charities, the philanthropic arm of the Masonic Fraternity of Minnesota, is donating $10 million toward the project's cost.
The U would borrow $132 million in the bond market to anchor the project, incurring an annual debt obligation of $7.5 million to $8 million for the next 30 years. Additional yearly expenses to operate the building are estimated at $3.5 million. Pfutzenreuter said the debt will be covered by lease payments from Fairview and the U's physician group. As a backup, there will be guarantees of repayment.
Pfutzenreuter said the U's risk is that the partnership "falls apart'' over the next 30 years, sticking the university with millions of dollars in annual expenses and bond payments. "That's always a possibility,'' he said, "but the alternative of staying where we are, losing market share and having lousy facilities was not tenable, in our view.''
Tony Kennedy 612-673-4213