Merger talks have been halted between Fairview Health System and physicians at the University of Minnesota, upending a deal touted as promoting research and education at the U while building a more efficient network of hospitals and clinics.

The U’s board of regents on Wednesday voted to terminate a letter of intent from October that would have combined Minneapolis-based Fairview with the University of Minnesota Physicians (UMP), the group that manages the private practice for U doctors.

For nearly 20 years, Fairview has owned the U’s teaching hospital, and the health system already works closely with UMP through an affiliation agreement.

A merger would have created a tighter link, but Fairview’s board last week voted to not accept the latest proposals outlining the deal.

“As the agreements are currently written, our board was not confident that the new organization would be able to realize the overall vision and original goals of the integration,” Fairview said Wednesday in a statement.

U President Eric Kaler said he still believed the parties are close to a deal, but said after the vote that sticking points “involved elements of governance” and “reserving power to the board of regents.” One example is that the U wanted to retain authority to approve or block any future change of control for the new health system, said Dr. Bobbi Daniels, the chief executive at UMP, which consists of about 750 doctors, including faculty for the U medical school.

Fairview did not grant an interview request. In its statement, the health system said it “continues to seek opportunities to discuss the agreements and find common ground.”

But Richard Beeson, a member of the U’s board of regents, said he was “angry with this sort of last-minute withdrawal by Fairview.”

The board at UMP voted last week to terminate the letter of intent as of July 1. The regents concurred on Wednesday.

“Today’s vote does not end our relationship with Fairview Health Services or diminish the work done to date,” Patricia Simmons, a U regent, said in a statement. “It does however allow the Medical School to continue to move forward to secure the partnerships necessary to fulfill our mission to the state.”

The U’s statement said the decision will not affect patient care. U physicians and Fairview will continue providing care under earlier agreements, including a 2013 deal to create the University of Minnesota Health brand at the on-campus hospital.

With a merger, the Fairview name would have gone away. The health system operates 42 clinics and five community hospitals, including Fairview Southdale in Edina and Fairview Ridges in Burnsville.

Wednesday’s announcement was something of a surprise since Dr. Brooks Jackson, dean of the U’s medical school, told the Star Tribune in May that the merger was near completion. But Jackson, who was not available for comment Wednesday, also said the deal was complicated by distinct cultures at the U and Fairview.

During Wednesday’s board meeting, Kaler said the discussions with Fairview had been going on for nine months. On June 8, the U gave Fairview what he called its last offer, but it was rejected on June 29, Kaler said.

Allan Baumgarten, an independent health care analyst in St. Louis Park, said he was surprised not just by Wednesday’s news, but also by the general structure of the merger as it was outlined last year. The deal seemed to require “a significant ceding of resources and authority from Fairview to the university,” Baumgarten said.

While there were few details Wednesday about why the deal fell apart, the arguments forwarded last year for merger still seem to apply.

The U wanted a deal that would provide more financial support for research and education, including access to patients for clinical trials. Fairview would have more direct access to the U’s specialists in rare and deadly diseases, and access to its cutting-edge medical technology.

A merger also would have swept away inefficiency from the current bifurcated leadership structure in which Fairview and UMP currently collaborate in running the U’s teaching hospitals and clinics.

The deal would have fit with a broader merger mania in health care that includes not just hospitals and clinics, but also health insurers. By combining, health systems believe they can better coordinate care and deliver it with higher quality at a lower cost.

Even so, there’s evidence of significant differences in how Fairview and UMP currently practice.

Performance data from a group called MN Community Measurement found in 2014 that the average cost per month of patients receiving primary care from UMP was $572, compared with $430 at Fairview Medical Group. The rate of colorectal cancer screening for appropriate patients was 54 percent at UMP, but 77 percent at Fairview.

The latest merger talks were launched two years after a failed effort by Fairview to merge with Sanford Health, a large operator of hospitals and clinics based in South Dakota. The proposed deal in 2013 prompted scrutiny by legislators and the state attorney general, followed by Kaler’s proposal that Fairview simply merge with the U.

All the merger talk ended abruptly in April of that year, with the U and Fairview saying they would simply strengthen their existing affiliation agreement. In May 2013, Fairview announced that it would contribute $90 million over 10 years to the U for clinical research, on-site training and to boost the academic hospital’s national standing.


Staff writer Maura Lerner contributed to this report.

Twitter: @chrissnowbeck