St Luke’s to invest millions despite technology, workforce challenges

John Strange

$300 million plan to update and expand St. Luke’s medical campus will extend over 10 years and be carefully modeled to mirror the future face of healthcare.

The first stage of the three-phase project will begin in 2019 with a repurposing of a five-story structure, known as Building A. That work will cost of $40 million. The project will include a new emergency room and ancillary services.

“We’re taking a very measured approach to match the facility with technology,” St Luke’s President and CEO John Strange said. 

He explained it is “brutally difficult” to predict the future of technology and those who use it, and cited fast-paced changes in the way procedures are delivered, to a significant reduction of in-patient procedures as challenging aspects of planning for the future. 

“With the technology changes, you are still going to need certain facilities such as operating rooms and ICUs, but more and more care is moving to outpatient,” he said.

Last year. St Luke’s facilitated 700,000 clinic visits, conducted 150,000 out-patient procedures and a mere 13,000 in-patient procedures.

“We’re just trying to make sure we have the right facility for the technology and that is an interesting scenario,” he said. “As an organization, only 40 percent of our revenue comes from inpatient and 60 percent comes from outpatient and urgent care, and that is only going to grow.” 

Expectations of the millennial and Gen-Z generations also have changed the way services are delivered. For instance, he noted that 56 percent of millennials reported they visited a primary care doctor this year compared with 74 percent of non-millennials. 

“This generation tends to prefer to go to urgent care, so we’ve been developing urgent cares,” Strange said. “You talk to an organization like Kaiser they will say 50 percent of visits are virtual and we think that is going to become a huge part of our practice down the road. So, we are trying to gear ourselves to become virtual at the same time as building the physical setting.”

Strange noted that Generation Z, defined as people born from the mid-1990s to the early 2000s, (which comprises 25 percent of the U.S. population) preferred face-to-face visits with healthcare providers.

 “It was interesting to learn that the Gen Zs said 93 percent want a face to face visit,” he said. “It’s how they prefer to receive their care. But, the definition of face-to-face is virtual or in person, and it is the same to them.”

Another “wild card” in planning for St. Luke’s future, he said, is change in the way patients access pharmaceuticals. Last June, Amazon bought a small online pharmacy called PillPack for $1 billion, allowing it to sell prescription drugs to customers in the 50 states where PillPack has licenses.

“The real wild card is Amazon and Google getting into healthcare, and there is rumor they are applying for a manufacturing license,” Strange said. “You could see a physician and have your prescription droned out to you. How does the local pharmacy compete against that? The hospital pharmacy is a significant part of our budget. I tell people our competition here is not Essentia. It is Amazon, Google and Apple.”

As St. Luke’s footprint continues to grow, it also faces workforce challenges, Strange noted. He said improved, modern facilities might make it easier to recruit medical staff, but it was unlikely. Certified Nursing Assistants (CNAs) and Medical Assistants (MAs) were almost impossible to recruit and retain, he noted.

At any given moment, St. Luke’s has between 130 and 160 positions open, he said. “The interesting story here is how do we keep our college students. We need to focus on that.”

Despite the challenges, St. Luke’s will push forward with its plans, which include putting up a new six-level 216-bed inpatient hospital tower, which would allow pedestrian access to the waterfront and rose garden.

At a recent meeting, city director of Planning and Construction ServicesKeith Hamretold the Duluth City Council that St. Luke’s and Essentia would also ask the legislature for $184 million over a 10-year for period for infrastructure, site acquisition and demolition aspects of an expanded medical campus. He said the plan would open up real estate for much needed housing development.

“We’re projecting $2 billion of new tax base growth,” Hamre said. “With both of these campuses, there’s a lot of property owned by both of these institutions that’s not on the tax rolls. The opportunity to put these properties back on the tax rolls is really quite a unique opportunity.”

Collectively, Essentia and St. Luke’s will ask the legislature for $184 million in assistance, with $60 million of that earmarked for St. Luke’s.