Rural Minnesota retools health care in wave of hospital mergers

Alexa Mayerhofer
Alexa Mayerhofer, a registered nurse, answers the phone at a nurse's workstation on the second floor at the New Prague Hospital. Since July 2011, the hospital has been affiliated with the Mayo Clinic Health System.
Photo by Jackson Forderer for MPR

The Queen of Peace hospital in New Prague wasn't in financial trouble when it sold to Mayo Clinic Health System just over a year ago. "We were doing well," said Mary Klimp, longtime chief administrative officer for the 25-bed hospital, which was opened in 1952 by an order of Benedictine nuns. "We had some cash reserves and a black bottom line."

But the healthcare field is changing dramatically, partly because the federal Affordable Care Act requires expensive electronic medical record systems and seeks to impose a new reimbursement model based on a cooperative approach to care. "Not being able to see the future, our board and leadership felt the most important thing was to sustain access to healthcare longer in the community we serve," Klimp said.

She didn't think her hospital could do that on its own. "You can't wait until the walls are falling down around you," she said. "You have to be proactive. Ten or 15 years from now, maybe a hospital wouldn't be here, maybe sooner than that. We don't want to spend all our energies trying to keep the doors open."

Hospitals in Minnesota are experiencing a new wave of consolidation. Sixteen independent hospitals have become affiliated with health systems like Sanford Health, Essentia Health and Mayo Clinic since 2005, according to the Minnesota Hospital Association. A 17th, in Virginia, is set to join Essentia in November. The trend is especially prevalent outstate, since much of the urban consolidation happened a decade or more ago. Of the 148 hospitals in Minnesota, according to the hospital association, only 42 remain independent.

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The push toward consolidation seems inevitable. But is it good or bad for patients and other residents of the communities involved? Mention "Sanford" or "Essentia" or "Mayo" in some Minnesota towns and you'll hear either a flood of praise, a torrent of mistrust or both.

"We don't want to spend all our energies trying to keep the doors open."

"This is the wave of the future," said Terry Hill, Executive Director of the National Rural Health Resource Center in Duluth. "Uncertainty about the future, including health care reform, is a big factor. It is also reflected in the economy. A lot of people don't have insurance and are unable to pay their bills. That has had an impact on smaller hospitals and clinics. There is an incredible amount of uncertainty out there."

When a community joins a system, it can save money on overhead and equipment purchases. The affiliation can help with physician recruiting, no small task in rural Minnesota, and the implementation of electronic medical records. It can provide access to specialists and make it easier to satisfy health reform requirements.

But giving up control of the local hospital can also make it feel less personal and more bureaucratic to patients.

Dr. Charles Jones
Dr. Charles Jones checks Celia Shetka's blood pressure on Friday, Sept. 7 at the New Prague Hospital. The hospital has been run by the Mayo Clinic Health System since July 2011.
Photo by Jackson Forderer for MPR News

MPR News asked people in its Public Insight Network about consolidations in their cities. Some said they liked the quicker test results, the convenience of new electronic record-keeping and a greater number of available services, for example. Others complained about less time with doctors, less friendly atmospheres and the loss of familiar physicians and nurses in facilities that now favor system providers.

Katie Longanecker, who lives in New Prague, saw both sides of the Mayo affiliation. "We were very satisfied with the clinic care; the doctors were amazing and the care was above expected," she said. But even with the benefits, "I think that there were people that could no longer see their doctors. Also, decisions regarding the major hospital in the community are no longer part of the community."

(You can find more PIN member responses here.)

"The doctors were amazing. (But) decisions regarding the major hospital in the community are no longer part of the community."

When a community partners with a health system, it is agreeing that local people will no longer have the final word on which services are provided or how the facility is run.

Staff at the hospital in New Prague have spent their first year under Mayo Clinic standardizing everything, Klimp said, replacing Queen of Peace badges, clothing, forms, appointment cards, stationery and more. The hospital will complete implementation of electronic medical records by year's end, and she's looking to hire new doctors.

At the same time, Klimp is trying to maintain that personal touch. "We try to keep the Queen of Peace alive," she said. "You see the loving hands of the sisters of St. Benedict all over." Employees are instructed to make eye contact with people and take them to where they need to go rather than pointing the way. "We've tried to sustain that," she said. "We recognize this is a change for our community as well."

"Having said that, we hear that health care is becoming more like a number," said Klimp. "New Prague is not unique. We all experience a fair amount of turnover in healthcare. It's not the friendly face you saw last time or your neighbor who is caring for you now."


Nationally, when combined with a lack of nearby competition, hospital consolidation has driven up prices, according to a June 2012 report from the Robert Wood Johnson Foundation. The report noted that, "The magnitude of price increases when hospitals merge in concentrated markets is typically quite large, most exceeding 20 percent."

"There is a potential of lowering health care costs. It could also raise them."

When it comes to quality of care, the effects are harder to quantify, though studies do make a connection between quality and competition. There is a push toward a more uniform approach to medical care, particularly suited to growing systems, which encourages treatment protocols and saves money on supplies and equipment, thanks to bulk purchasing.

Yet, if healthcare in rural Minnesota becomes dominated by a handful of big players, as it's on track to do, patients could be left with fewer choices and, worst case, a take-it-or-leave-it mentality.

"In essence, it's a good news/bad news scenario," said Hill. "There is a potential of lowering health care costs. It could also raise them. I think at its best consolidation is positive."

By design, a large health system has different priorities than an individual community does. "If you want to have both local control for all decision making and have access to (system) capital, you can't have both," said Dr. Dan Nikcevich, president of Essentia Health in northeastern Minnesota and northwestern Wisconsin. "There's a give and take."

Health systems in rural Minnesota tend to operate on a hub and spoke model. They have their main hospitals with the greatest breadth of services and also their clinics and smaller hospitals that draw patients into the network and treat some health issues.

"To some degree, this expansion of systems has been based on the concept that the bigger ones will win in the end," said Hill. Even when it comes to problem hospitals, "They think they can turn them around. The uncertainty is out there. It may not be the case."

"There is a lack of services here. We don't have any small surgeries, overnight type of things."


In Sandstone, north of the Twin Cities, community members recently accused Essentia, which has run the local 25-bed hospital in one form or another since 1997, of neglecting the facility. "There is a lack of services here," said Ron Osladil, chair of the community's North Pine Area Hospital District board. "I'm talking about specialties. We don't have any small surgeries, overnight type of things."

He's concerned that too many local patients are funneled to Duluth and elsewhere. "Many who come in come into the emergency room," he said, "and we're probably not set up to take care of (their problem) and they are shipped off."

Both the facility and physician roster are lacking, in Osladil's view. "We're not saying it's easy. (But), I know that small independent hospitals are getting doctors to come into their towns."

The situation became so contentious, the community threatened to cancel Essentia's lease to run the hospital. After a series of conversations, an acknowledgement by the company that the hospital needed updating, and even an apology to the community, the parties managed to hammer out a new, three-year lease.

"What we agreed to is, in 18 months we have to have a plan for a new hospital or new facility," said Nikcevich. He's not sure exactly what services might be provided, or how large the new facility might be. "I think there has to be a good emergency room space," he said. "There has to be the capacity to do some type of surgery there, which would be straight-forward general surgery."

"You can't replicate everything everywhere," said Nikcevich. "It doesn't make sense financially or clinically." But "there are a lot of services that are not being done in Sandstone that could be."

While that all sounds promising, Osladil has reservations. "I need them to prove to me they are going to do what they say they are going to do. The two people we negotiated with were very fine people. Essentia's service is very fine. But the way we've been treated in the past, the way they treated us in the transition period, I still have this little thing in there that tells me, 'be careful Ron.'"


Other facilities seem to have come out well in these affiliations.

The hospital in Wheaton, in far western Minnesota, is the only hospital in sparsely-populated Traverse County. It sold to Sanford in 2011 and the hospital's CEO JoAnn Foltz, a nurse by training who has worked at the hospital for 33 years, said the move has been "positive for us." She said the facility was financially sound at the time of the sale, but she thinks without a partner, the future looked dim. "I think we would have been open in 10 years," she said. "But we would have been much slimmer and not have things as nice as we have them now."

Since merging with Sanford last year, Bemidji's hospital is on its way toward becoming a regional hub, a new clinic is underway and the community is set to benefit from millions in investments. Paul Hanson, President of Sanford Health of Northern Minnesota, who has run the hospital since 2009, said before the merger, it had seen several years "that weren't real pretty."

The merger didn't go entirely smoothly. Nurses threatened to strike during contract negotiations with Sanford over wage and benefit issues, but eventually reached an agreement. Staffing levels now are higher than before the system came in, according to Hanson. "At that time, we had 75 doctors. Today we have a little over 100." The hospital operates in the black, he said.

In Aurora, Northern Pines hospital administrator Laura Ackman credits Essentia with keeping the facility's doors open. The hospital wasn't doing well financially before the merger two years ago and there were times when they had to close the emergency room because they didn't have doctors to staff it. In addition, "Our margin wasn't enough to have electronic medical records in place in a short time," Ackman said. "We were not going to manage that."

"There was a great concern that the hospital might not continue to operate," she said. Now, the hospital has a new entrance, clinic and radiology suite. "There has been an amazing change," said Ackman. She said the hospital has seen an uptick in patients as a result. "The minute the Essentia sign went up outside, the community perceived us in a different light and at a different level."

There appears to be no sign of the consolidation trend slowing. Both Essentia's Nikcevich and Sanford's Hanson say they are talking with other communities about further expansion.

Hill made a prediction about independents: "There will be fewer, no question about that. They will either be in systems or in networks. And there will be fewer networks and systems. In terms of sheer numbers, I'm not sure what to predict." But consolidation, he said, won't save them all. "A lot of these independent hospitals won't be able to survive."