What does the Allina-Sutter Health deal mean? We asked an expert in health care business – Twin Cities

Earlier this month, Allina Health and California-based Sutter Health announced they were joining with Allina, becoming Sutter’s Upper Midwest division.

Officials said the combined nonprofit health system is not considered a merger as Allina Health will retain its brand and Minneapolis headquarters and remain focused on Minnesota and western Wisconsin. Lisa Shannon, Allina’s current president and CEO, will run the Upper Midwest division.

The move may well have consequences for patients of Allina, which has 13 hospitals and more than 90 clinics across Minnesota and western Wisconsin. Allina owns and operates United Hospital in St. Paul and Abbott Northwestern Hospital in Minneapolis as well as the Minneapolis Heart Institute.

The deal will come under review by state Attorney General Keith Ellison, who will make a determination on whether it is in the public’s interest — including whether health care access is reduced, according to his office.

To help better understand what this may mean for patients in Minnesota and western Wisconsin, the Pioneer Press recently spoke with Joe White, who worked as a partner at the accounting and consulting firm CliftonLarsonAllen and as part of their health care group. When he retired, he became a clinical faculty member at the University of St. Thomas teaching in the health care MBA program and executive MBA program.

The following interview with White has been edited for space and clarity.

Q: Getting started on this Allina-Sutter deal, could you tell me why this is important for St. Paul and east metro residents and patients? Why might it matter for the average patient?

A: Allina overall has been struggling financially. And that’s never a good thing for a health care provider because it just puts pressure on growth. I think quality is always priority one and Allina is a high-quality organization, but you’d hate to see them not be able to implement new programs or things like that because of financial losses. It erodes their capital and their opportunity for innovation and growth. The Sutter deal allows them to, as they’ve shared, kind of become the hub for the Upper Midwest. And Sutter with its additional size and capital should allow Allina the opportunity for growth. What is growth? New programs, expanding their programs. Maybe they try to reach out to other facilities in the outlying areas — there aren’t many left, but there are some that can start to direct tertiary and more complex care to their flagships, which is really Abbott Northwestern Hospital. Abbott is their flagship and especially with that new building going up.

United Hospital, the St. Paul facility, how is that going to play in this? It becomes a referral source. I think it becomes more like a community hospital and not the tertiary care hospital that Abbott is. I think it starts to position Allina to be more of a — continue to be — a stronger competitor against Mayo Clinic and M Health Fairview.

Q: And how might it impact the patient relationship with the system such as insurance, staffing, specialized departments? What have you normally seen in instances like this?

A: Well, we don’t see too many instances like this, but I think for the patient, it means good care — good quality care — continuing. Is there a cost associated with this? As we’ve seen, there’s articles written saying that mergers increase the cost of the consumer. Well, if they’re not profitable, how are they going to get profitable? The costs are going to increase one way or another. So to me, it’s not the merger that drives the cost increase. It’s the need for the profit or to reduce the losses. The merger allows for the opportunity to survive and continue to provide access to high-quality care.

Q: Some union leaders for health care workers with Allina released a statement upon the announcement of this deal expressing some concerns. They said, “We obviously have concerns about what this means for employees, our contracts and our pension plans. A key issue is ensuring that charitable assets built up by Minnesotans are not diverted out of state or to a small handful of executives for personal enrichment.”

Sutter Health has faced lawsuits based on allegations of, for example, antitrust practices that have been said to have led to increased costs for patients. Is there anything that could be worked out in this deal to address concerns with that or what might you expect with how that could play out with this deal?

A: Well, there’s a lot packed into that statement, right? We’ve got pricing and wages and stuff like that. To me, the market, if you let the marketplace continue, it’ll work its way out. The antitrust issues, we will continue to have competition here, right? There’s strong systems. We’ve got the HealthPartners, Fairview system and North Memorial, Mayo and Allina all trying to capture market share.

The unions in Minnesota are quite strong. I haven’t verified this, but I have heard that the nurses in Minnesota are paid higher than the nurses in Wisconsin, on average. And that’s a result of their strong unions and they deserve that. Maybe the Wisconsin nurses are underpaid, right? I’m not saying that the Minnesota nurses are overpaid. But we have strong unions and they’ve bargained well.

But Sutter coming in really doesn’t change that. They’re going to have the same strength other than Sutter will be able to, if they go on strike, might be able to survive it longer. Can’t live without the unions.

Q: Have you seen deals like this play out elsewhere? Are there any examples we can look to? Has Sutter Health had any other regional deals like this?

A: No, I think this is one of their newer ones and they brought on somebody new to form these partnerships. I think the most similar thing might be Kaiser Permanente has done some, they created a new entity called Risant. And it acquired Geisinger (Health) and I think Cone Health out in North Carolina. So they’re trying to create these regional hubs and take advantage of the scale of a national organization.

How are they going to compete against places like Mayo? They have to figure that out.

Q: And you see a deal like this as a way to address competition like Mayo, a big system like that?

A: Yes.

Q: Allina made a real effort to emphasize that this isn’t a merger. Why do you think they wanted it to be seen as a joining as opposed to a merger? Is that a new trend at all within health systems, trying to preserve that brand, that regional administration, that sort of thing?

A: I don’t know. You know, it’s my first reaction, but I think Allina has a strong brand. They have a reputation for good quality. And being a regional hub sounds like a good strategy. So yeah, the Allina name is stronger than Sutter in the Midwest.

Minneapolis Heart Institute has an incredible reputation. They are world-class cardiology. They would not want to lose that. And they’ve got other programs that are great, too.

Q: As this unfolds, what should we watch for in terms of next steps? And when do you expect regulatory involvement?

A: I think they said they’d want, hope the deal to get done by the end of the year. I think it’ll be quiet between now and then unless somebody rattles, shakes things up.

But what are other organizations going to do, right? For every action, there’s a reaction. How does HealthPartners respond to this? How does North Memorial Health? So, does this make them consider strategic options with other entities? Does it start to cause more consolidation?

Q: Does something like this work out for the average patient in general? Are there good and bad outcomes for patients? And if so, what are they?

A: To me, we have to have sustainable, profitable health systems. What happens if Allina doesn’t do this deal? To me, it lessens competition, right? Because we need Allina to survive. Does this help them survive? Yes. So, to me, for the average patient: access to high-quality care.

Q: In the announcement, Allina touted Sutter as being in a tech hub in Northern California, specifically with artificial intelligence. They mentioned how that will help with some things like administrative burdens. What may AI mean for patients? Will it be a good thing, bad thing or maybe both?

A: It’s going to get very interesting and, an aside but an example, is revenue cycle. That whole billing, coding, collection process in health care is a tremendous cost. So much so that the revenue cycle industry in the United States is $4.4 trillion. The entire economy of Japan is 4.2 trillion. Why is the cost of billing health care services greater than the economy of Japan?

AI technology and that whole process should be able to get to a point where it reduces that burden. So I can see technology helping shrink that cost. Sutter might be on the forefront of that being in Silicon Valley, but no guarantees on that.

Q: Do you see that at all leading to reduced costs for patients?

A: Yes. I mean, we have to reduce health care costs. How we get there is, I don’t know the answer to that. Health care costs are too high. If organizations get too big and they don’t get innovative and costs stay high, it’s OK because there will be new entrants into the market. You see places like Herself Health. There are small little clinics starting up. And physician-owned clinics, right? It creates opportunity for new entrants into the market. They will be able to innovate and provide care and reduce costs if the large systems cannot.

Q: That almost seems like the opposite of what I would expect — consolidation opening the market up to other things like a smaller physician-owned clinic. Do you see that in some of this?

A: Yes. I can see opportunities for primary care to stand alone back to the days when there were independent medical groups. The Minnesota marketplace is very unique in terms of there’s very few independent primary care groups. Maybe technology will allow them to form and kind of create these small practices again.

Q: And do you see patients expecting more remote or AI visits with some of this?

A: Yes, everybody’s a lot more comfortable, or not everybody, but more and more people are becoming more comfortable doing telehealth and things like that. ChatGPT has got their health record, right? And so we will see a lot of changes in the next three years in terms of how health care is delivered.

Q: Will there be anything that’s kind of gone away, maybe as you mentioned with some of these financial difficulties, that could come back with something like this?

A: Oh, absolutely. They still have to become profitable. And if they don’t, it won’t be a good thing. Programs will close or they’ll have to shrink the hospital beds, but they need to implement everything that is necessary — would have been necessary anyways. The deal with Sutter does not solve the problem.

How will the regulatory process work?

Meanwhile, the state attorney general’s office is expected to weigh the Allina-Sutter proposal.

The Pioneer Press recently spoke with Assistant Attorney General Elizabeth Odette about how that may play out. Odette manages the antitrust division at the Minnesota Attorney General’s Office and leads the office’s health care transaction review.

The attorney general was given additional oversight authority through state statute in 2023 that requires certain health care transactions to be reviewed by the office under antitrust, charities and public interest factors, according to Odette.

Q: Could you go into some more detail in terms of how the attorney general’s office determines how these different issues — public interest factors, antitrust factors — all sort of weigh in on a final decision?

A: So, we have had the law in place for, it’ll now in May be three years, and so we haven’t had a ton of transactions to review. The threshold levels include those that involve companies that have $80 million or more in revenue. And so that kind of limits the number of transactions that we get. But we see both nonprofit and for-profit. I’ll kind of go through all of them. So with antitrust, you’re looking to make sure that there’s not a lessening of competition. And that typically occurs when you have any company, whether it be a hospital or health care entity or not, competing for products or services in the same proximity geographically is a good example, right? So that’s not likely here with these two entities, but that is an example of how we would look at antitrust. That’s not limited to that, though. We would look at whether there’s competition at different levels of the health care industry. So does it impact insurance rates? Does it impact other access to things? When these two companies come together, will their market power in any given circumstance, employer insurance, be something that will lessen competition?

This is a company that is outside of Minnesota and Allina is a nonprofit with Minnesota charitable assets. So, we want to ensure in any circumstance like this, where an outside nonprofit is looking at acquiring a Minnesota nonprofit, that the Minnesota charitable assets are protected and that those charitable assets continue to benefit Minnesotans.

And then from the public interest, that often becomes more crystallized as we get public input. We’re in very early stages of that. We will provide opportunities for the public to provide us their input in the near future.

Q: What can the Attorney General Keith Ellison do or what would be next steps for if he were to decide that he didn’t like this deal?

A: So the statute really only provides one remedy if the attorney general finds that it’s in violation of either antitrust, charities or this health care transaction law and that is to go to court to seek relief. And that relief would be to sue to enjoin the parties from closing the transaction. And I don’t have an example of that specifically because we have not done that under the new statute.

Q: Are there any other groups that will be reviewing this deal, such as the Legislature?

A: I don’t know about the Legislature. I think they, in the past, have chosen to hold public meetings about particular mergers and I don’t know if they will again. It will probably depend on if they can fit it into this legislative session. But I would be remiss if I did not say that we work very closely with the Minnesota Department of Health. So, our statute does say we work in consultation with them. So, they have a group that we meet with pretty regularly on the transactions that we have under our review.

Q: Sutter Health has settled lawsuits based on allegations of antitrust practices, as well as Medicare fraud. How do you weigh that history when reviewing a proposed merger like this?

A: So yeah, that is something that we will look at. I think that type of history — and I’m not going to speak specifically to Sutter — just kind of generally when you look at a company whether it be in health care or otherwise that has a history of antitrust or other violations, on the one hand, that could be a concern because they have been identified in the past as having an unfortunate practice of potential violations. But on the other hand, if there have been lessons learned from those past practices and government oversight, then that could be helpful.

Q: Is there anything else we should know?

A: Another thing that happens in hospital merger review from an antitrust and charities perspective is we reach out to market participants and in health care that can be a little complicating and complicated because we have so many layers, right? From patient all the way up to insurance companies and all the infrastructure that goes in between. And so, we do tend to reach out to market participants, large employers, insurers, and try to get their perspective on any hospital merger that we are reviewing. So that piece is maybe not as evident in the statutory part of it because that is requiring the parties to give us information. But we also, in addition, do our own evaluation with third parties as well.