The University of Minnesota is taking a major step toward buying back its teaching hospital in Minneapolis from Fairview Health Services.

Regents at the U are expected Friday to approve a letter of intent for a deal that would close by the end of 2027, roughly 31 years after Fairview purchased the U hospital in a financial bail out.

Boards at Fairview and University of Minnesota Physicians already have agreed to the letter, but key elements of the proposed transaction — including a purchase price — aren’t yet clear.

The move comes about 15 months after Fairview proposed an ill-fated merger with South Dakota-based Sanford Health. U officials opposed the move as it would have transferred control of University of Minnesota Medical Center to an out-of-state entity.

University of Minnesota Medical Center is the primary teaching venue for the state’s largest and only public medical school. About 70% of physicians practicing in Minnesota trained at the U.

The letter of intent specifies a first closing date by the end of this year, at which point the U would pay Fairview 51% of the negotiated purchase price. Funds for the health system’s remaining stake would be placed in escrow.

While negotiating the acquisition in the coming months, Fairview and the U will also continue talks on revamping their affiliation agreement for the large M Health Fairview network of hospitals and clinics.

For now, nothing changes with patient care and day-to-day operations. In a joint statement, the U and Fairview said no layoffs are expected and staff transitions are being planned to minimize disruptions.

“We are grateful for the collaboration and shared successes we have experienced with Fairview Health Services over the years — M Health Fairview patients and all Minnesotans are better off because of the work of our talented teams,” U interim president Jeffrey Ettinger said in a statement. “We also agree we will need to step up in new and different ways for the future health of our state.”

The U’s plan to regain ownership of the hospital is bound to be scrutinized, considering the potential expense and the university’s difficulty operating it in the 1990s.

Last summer, Janie Mayeron, chair of the Board of Regents, acknowledged this history, saying she understood one reason the U stopped running the medical center was “we weren’t doing it very well and we thought there were others who had better expertise.” The comment came during a board retreat when Mayeron asked Cliff Stromberg, a long-time consultant to the U, if other universities had taken back their teaching hospitals — an idea that she described as potentially “dicey.”

Stromberg replied that some universities had done so, but he also advised: “Your cautionary observations are exactly right.”

University of Minnesota Medical Center had more than 750 beds staffed for patients during 2022, making it the state’s second largest inpatient facility behind Mayo Clinic Hospital in Rochester.

The facility consists of four large and distinct operations including, on the U’s East Bank campus, an inpatient hospital for adult patients as well as a clinic and outpatient surgery center. Across the Mississippi River and adjacent to the U’s West Bank campus, the complex includes Masonic Children’s Hospital and an inpatient facility that’s one of the state’s largest sources of inpatient mental health care.

Fairview, which is based in Minneapolis and ranks as Minnesota’s fourth largest nonprofit group, owns all three hospital facilities and has a financial interest in the clinic and outpatient surgery center. The deal would provide the U with ownership of all four facilities.

“This is a critical first step towards a new and reimagined relationship that will better meet the current and future needs of our patients and our community…,” said James Hereford, the Fairview chief executive officer, in a statement. “Today’s announcement is designed to provide clarity on our collaborative path forward.”

After the first closing, a new board, with membership split between Fairview and the university, would then run the hospital during a two-year transition period. This would lead to a second closing date by the end of 2027, when the remaining funds would transfer and the U would take full control.

The deal must be approved by regulators, a process that could stretch into 2025.

Meanwhile, the U, Fairview and University of Minnesota Physicians will keep negotiating a new definitive affiliation agreement for running M Health Fairview. These negotiations are crucial because large teaching hospitals typically rely on a network of affiliated hospitals and clinics to refer enough patients for advanced specialty services like those offered at University of Minnesota Medical Center.

The letter of intent sets Sept. 30 as the deadline for this new affilation deal, although there is an option for an extension.

“While this [letter of intent] is a critical first step, there still remain important conversations around the long-term alignment between our organizations…,” Fairview and the U said in a letter distributed Friday to employees. “We will continue to operate as M Health Fairview for the foreseeable future.”

Toward the end of last year, Fairview provided notice that it didn’t want to renew its current agreement with the U, which is set to expire on Dec. 31, 2026. It specifies Fairview’s ongoing financial support for academic health programs at the U, a sum that reached about $100 million last year. The health system says it can no longer afford payments at that level and the university also provided notice that it wanted to negotiate a new deal, as well.

The university floated in January 2023 the idea of building a state-of-the-art replacement hospital on the East Bank campus as part of a five-point plan for its academic health care programs. The letter of intent says the U will pursue analysis, planning and obtaining funding for this new hospital, which officials have said could cost between $1 billion and $2 billion.

The U’s medical school has seen improvements in its national rankings and university officials say the don’t want to jeopardize the reputation with outdated facilities.

In recent weeks, the U sought support for its hospital ambitions and five-point plan from a state task force convened by Gov. Tim Walz. In a final report this week, the group provided qualified support, although members said there was a need for more financial details as well as transparency and accountability measures.

“We know this [letter of intent] leaves many questions unanswered…,” Fairview and the U said in the letter to employees. “We are committed to working collaboratively with our teams and sharing information as we work to build our new and exciting future.”

Reporter Jeremy Olson contributed to this report.