A large health system in Northern California plans to acquire Allina Health, one of the state’s largest operators of hospitals and clinics.

The deal announced Tuesday, March 17, with Sacramento-based nonprofit Sutter Health would create health systems with a combined 39 hospital campuses and hundreds of outpatient care locations across California, Minnesota and Wisconsin, employing about 88,000 people overall.

Minneapolis-based Allina Health would function as a subsidiary of the larger California nonprofit. Allina’s leadership would keep running local operations. Executives say Allina patients shouldn’t see any near-term changes in the doctors they see, the services provided or insurance network coverage.

The deal is akin to an acquisition, although Sutter Health is not paying for the ownership interest it would obtain. It’s expected to close by the end of this year, pending regulatory approval.

The proposed transaction comes as numerous financial challenges are pushing more health systems to explore mergers and acquisitions.

Hospitals in California and Minnesota are already controlled by a small number of large health systems. That market concentration has forced hospital operators to explore deals in more distant states that often don’t share borders. Last year, South Dakota-based Sanford Health merged with Marshfield Clinic in central Wisconsin.

In time, the Sutter-Allina deal would allow for $2 billion worth of investments across Minnesota and western Wisconsin, including new outpatient locations and specialty care institutes, plus technology to improve care and make it more efficient, Allina chief executive Lisa Shannon said in an interview.

The noncash transaction is scheduled to close by the end of 2026, pending regulatory approvals. At that point, Sutter Health would stand as one the nation’s largest health systems, likely collecting more revenue each year than the combined operations of Rochester-based Mayo Clinic.

Allina Health would become the Upper Midwest division of Sutter Health, which announced plans for growth outside its home state earlier this year.

“We are coming at this through a position of strength,” Shannon said. “Allina Health has services, skills and capabilities ... and we’d like to grow them faster than maybe we could by ourselves.”

Allina Health has struggled with operating losses over the last four years. Shannon referenced how the hospital sector is bracing for the impact of Medicaid cuts that are expected to begin late this year and significantly trim revenue over the next decade.

Yet Allina officials insist that the Sutter Health deal is not about rescuing the Minneapolis health system. Nearby rival Fairview Health Services, for example, ran five consecutive years of larger operating losses than Allina, before Fairview orchestrated a financial turnaround without an outside partner.

Rather than cutting services and jobs going forward, Allina Health hopes to be better positioned for growth as a Sutter Health subsidiary.

“We made a conscious choice of Sutter,” Shannon said, “and they made a conscious choice of us.”

Warner Thomas, the Sutter Health chief executive, would continue as CEO once the acquisition is complete. He and Shannon said the deal would bring together health system strengths that stem from their locations — Sutter Health is located in Silicon Valley, at the forefront of AI development, while Allina Health collaborates with medtech giants in the Twin Cities, such as through research on cardiac devices at the Minneapolis Heart Institute.

“When Allina Health joins Sutter Health, we look forward to making significant investments that improve care access and patient experience in Minnesota and western Wisconsin communities,” Thomas said in a statement.

Allina Health in 2024 operated more hospital beds — 1,837 — than any other health system in Minnesota, according to data from the state Health Department. Its three largest medical centers — Abbott Northwestern Hospital in Minneapolis, Mercy Hospital in Coon Rapids and United Hospital in St. Paul — ranked among the six largest in the state in terms of available beds.

In 2024, Allina Health ranked as the 50th largest health system in the country in terms of revenue, while Sutter Health ranked No. 15, according to Becker’s Hospital Review, a trade publication.

Whereas Allina has lost money on operations during six of the past 10 years, Sutter has been more consistently profitable, according to a Minnesota Star Tribune review of financial statements.

Five Sutter hospitals in recent years were named by U.S. News and World Report among the best in California and 16 received “High Performing” recognitions in at least one individual quality measure across services. In addition, three campuses were named in the Top 50 nationally for certain medical specialties.

In 2021, Sutter Health paid a $575 million settlement with the California attorney general to resolve allegations that Sutter Health’s anticompetitive practices led to higher health care costs for consumers. Last year, Sutter agreed to pay about $230 million to settle a federal class-action lawsuit over similar allegations dating back more than a decade.

Shannon said efficiency as well as accountability for providing good care at a good price are primary goals for the transaction.

“We don’t expect change for our patients,” she said. “They will still come to Allina; they will still see their doctors; they will still have the care that they are used to receiving. We expect that to be as it is, and only better.”

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