Two of the Twin Cities' most prominent health care systems, HealthPartners and Park Nicollet, have signed an agreement to join operations, marking the biggest merger in the local health care market in two decades.

If approved by state and federal regulators, the merger would create the state's second-largest hospital system by revenue, behind the Mayo Clinic in Rochester, and combine two organizations with storied traditions in Twin Cities medical care.

Patients shouldn't notice immediate differences, as the affected hospitals and clinics will retain the names of their respective organizations. But the move could presage a new wave of consolidation as Minnesota hospitals and clinic systems realign their services and jockey for market share in the face of ever-rising cost pressures and the rollout of federal health reform.

"This is not being done for emergency purposes," said Keith Halleland, a Minneapolis health care attorney not involved with the deal. "This is about provider consolidation -- which is going to be a trend in this era of health reform. Providers are going to need to provide a greater level of care and a greater breadth of services to people of Minnesota, period, regardless of what health condition they have."

HealthPartners will have its name on the combined nonprofit entity, which will have 1,500 physicians and two of the region's premier hospitals, Methodist in St. Louis Park and Regions in St. Paul. The new group also will be linked to the HealthPartners insurance plan, which covers 1.4 million people, primarily in Minnesota and western Wisconsin.

Officials said they do not expect layoffs.

The move instantly expands HealthPartners' network of doctors and adds lucrative specialty clinics to its mix. For the smaller Park Nicollet, the state's sixth-largest health care system, the alignment bolsters the organization against expansion by the two dominant Twin Cities players, Allina and Fairview.

"HealthPartners is first and foremost an insurance company," said Steve Parente, a health care economist at the University of Minnesota's Carlson School of Management. "This gives them more of a diversity play than any insurance company in town. It reflects a broader national trend where insurance companies are taking the lead position to determine how these integrations will occur."

Shared missions

HealthPartners CEO Mary Brainerd, who will be the chief executive of the combined organization, said in a statement that the two organizations share a similar mission of making people healthier and making health care more affordable.

"Separately, and in partnership, we've worked toward these goals in the Twin Cities area for decades," she said. "Together we'll be able to pursue this mission across our region for the benefit of the people we serve."

Park Nicollet CEO Dr. David Abelson, who will become president, also noted the long shared history. "By combining our organizations, we'll take that collaborative spirit much further, creating new potential for meeting the changing needs of our community at this important time in health care," he said in a statement.

Bloomington-based HealthPartners is the state's fourth-biggest nonprofit in the state by revenue. The bulk of its revenue comes from its health insurance business, but it also operates more than 70 medical and dental clinics. Regions Hospital is a Level I trauma center and teaching hospital that is the second largest provider of charity care in the state.

Park Nicollet, headquartered in St. Louis Park, operates a network of 26 clinics in addition to Methodist Hospital, drawing largely from the wealthy western suburbs. Park Nicollet also operates the Melrose Institute for eating disorders and is a partner in the TRIA Orthopaedic Center with the University of Minnesota.

Though the two organizations now generally operate on opposite sides of the Twin Cities area, their histories are intertwined.

HealthPartners was created in 1992 out of the merger between two HMOs -- Group Health and MedCenters, which was Park Nicollet's health management organization.

The HealthPartners-Park Nicollet marriage adds to a growing body of evidence that a new wave of consolidation is beginning.

"What we're all thinking now is ... how do providers provide total cost of care for a variety of populations -- people with disabilities, diabetes, heart disease," said Halleland, who represented MedCenters when it merged with Group Health. "It's not so much about all these special centers anymore, but pairing up with them so you have one organization that can do everything for basically everyone in the health care environment."

Total care, cost controls

The federal health care law is playing a role as well. Passage of the Affordable Care Act in 2010 has set off a string of mergers around the country, as hospitals, doctor groups and insurance companies create "accountable care organizations" that can manage the total care of a patient while controlling costs. Under the law, hospitals and clinics are being forced to take more financial responsibility for keeping costs down by avoiding unnecessary treatments or preventable relapses.

While this is the first major announcement locally, other hospital systems are making moves to expand their footprints in the Upper Midwest.

Sanford Health, with headquarters in Fargo, N.D. and Sioux Falls, S.D., has long been rumored to be looking for a way into the Twin Cities market. Its main focus has been on acquiring hospitals and clinics in rural areas, and it now runs a third medical hub in Bemidji. In the past year, Sanford acquired Broadway Medical Center in Alexandria, drawing from the St. Cloud area and portions of the metro area.

The Mayo Clinic, which dominates the southeastern part of the state, has announced plans to open a clinic near the Mall of America in Bloomington. And earlier this summer, Mayo paid Fairview $64 million to buy a clinic in Red Wing.

Mayo, with $8.2 billion in revenue in 2010, is the state's largest hospital-based system.

HealthPartners had combined revenue from insurance and medical clinics of $3.58 billion in 2010, an increase of nearly 6 percent. Park Nicollet reported $1.23 billion in revenue, about the same as the year before. It is the state's ninth-largest nonprofit and sixth-largest health care system by revenue.

The agreement must be approved by the Federal Trade Commission and U.S. Department of Justice, which will investigate how the move would affect pricing and competition in the Upper Midwest health care market. The Minnesota attorney general's office also has authority over anti-trust matters and has an interest in health care matters.

The deal is expected to close Jan. 1, 2013.

Jackie Crosby • 612-673-7335