Essentia Health exits talks on proposed $1B partnership with U, leaving academic medicine in limbo

An attempt to create a new statewide nonprofit health system with the University of Minnesota and two other health systems has ended, casting more uncertainty around the future of the state’s primary medical teaching hospital.

People close to the negotiations who were not authorized to speak on the record cited an impasse over the proposed structure as the reason Duluth’s Essentia Health left the talks.

Essentia issued a statement Thursday saying the deal’s strategic facilitator “determined Essentia no longer had a role in that process.”

The end of negotiations involving Essentia leaves the U with limited time to forge a new agreement with its current partner, Fairview Health Services. Fairview Health currently uses the M Health Fairview brand and provides $100 million annually to support medical training, research and patient care.

“Despite our good faith efforts, thus far we have not reached an agreement with Fairview that secures the long-term future of the medical school — one of the state’s most vital and essential assets," the U said in a statement.

The university operates the state’s largest and only public training program for physicians. About 70% of all physicians in Minnesota were trained at the U’s medical school or residency programs. The medical school uses University of Minnesota Medical Center as its primary teaching hospital.

The Essentia Health proposal, which the U announced in January, followed a tumultuous sequence over more than two years in which Fairview proposed a merger with South Dakota-based Sanford Health, only to have the deal fall apart amid opposition from the U.

The current partnership between the U and Fairview is set to expire at the end of 2026. A letter from the Attorney General’s Office last week asked the two for detailed reports on the consequences of an “unwind” scenario that would take place by the time the existing agreement expires, according to people close to the talks.

While that deadline is more than a year away, Fairview and the U would need a long time to disentangle their operations if a new agreement were not reached.

Negotiations between the U and Fairview are ongoing.

“It’s normal and to be expected that in working to reach an agreement on an issue as complex as this one, negotiations would take some time,” said Lois Quam, who was appointed by the Attorney General’s Office to serve as a strategic facilitator amid signs of an impasse between the parties earlier this year.

A person close to the talks said Essentia opted out of negotiations last month after it became clear Fairview would not merge into a proposed new nonprofit health system led by the Duluth provider.

There is also growing concern that university physicians could seek stability and employment elsewhere. For months, doctors have been pushing for the U to get a new deal as soon as possible.

The demise of the Essentia proposal is a setback for university President Rebecca Cunningham, who in January touted the concept.

Cunningham kept pushing the plan despite opposition from Fairview Health Services, the nonprofit group that bought the university’s sprawling teaching hospital campus in Minneapolis in 1997.

“As we have done in the past, the university will be exploring all options as part of a path forward that includes partnerships with healthcare providers in the Twin Cities and across Minnesota,” the university said in a statement this week.

The U stressed that while it continues to work toward a solution that “includes a relationship with Fairview,” that arrangement will be different from today’s status quo.

Essentia Health said in a statement it still wants to work with the U to help ensure the future of Minnesota’s health care workforce, which is closely tied to the University-Fairview partnership.

“As the largest rural health care provider in Minnesota, we’re committed to advancing partnerships that keep health care accessible across the state,” Essentia’s statement said.

The abandoned proposal from the U and Essentia was meant to bolster health care in rural communities and access to specialty care.