10/8/2012 by Scott Stein

PHOTO: Dan McGinty

Virginia turned a new page on Sept. 4 when the city council decided to affiliate the municipally-owned Virginia Regional Medical Center (VRMC) hospital with Essentia Health.

The formal affiliation will begin in January. Essentia will lease the hospital from the city and rename it Essenia Health-Virginia.

As part of the agreement, Essentia made promises regarding facility management. Included is an immediate $7 million investment into infrastructure projects.

Essentia also plans to add 50 full-time equivalent employees and $7 million to the hospital’s payroll within five years.

Dan McGinty, executive vice president of hospital relations in Essentia’s East Region, said the $7 million will be invested largely in projects the public won’t see, like heating, ventilation and fire suppression. Essentia also will assume payments on current bonds, totaling $7 million, and will pay two anticipated bonds, one beginning in five years for $10 million and the other beginning in 10 years for $15 million.

The promise of infrastructure investment and job growth was central to Essenia’s proposal.

“We’re committed to growing services here,” McGinty said. “Healthcare jobs are changing all the time, so it’s impossible to say whether everyone will have their same job. But the bottom line is that there will be more healthcare jobs in the community.”

Affiliating with the larger system means more stability and also a more seamless hospital and clinic relationship. Essentia currently operates a clinic next to the hospital.

Essentia sees Virginia as a “secondary care” hub, McGinty said, meaning patients in Essentia’s Hibbing, Chisholm, International Falls, Ely, Babbitt and Aurora clinics could be funneled there.

“It’s just better to have people receive that care closer to their home instead of having them drive to Duluth,” McGinty said, “and it makes strategic and economic sense to integrate the clinic and the hospital in Virginia.”

Essentia has been criticized by some of Virginia’s city leaders, most notably Mayor Steve Peterson, for failing to deliver on physician recruitment promises. Aligning the clinic and hospital will enhance that process, McGinty said. Essentia will focus on recruiting primary care physicians and then deliver on specialists. Another priority is to add around-the-clock surgical and OB/GYN care.

“We’ve had success recruiting,” McGinty said. “We’ve struggled more with retaining physicians, and not having an integrated system is part of that problem. With more primary care physicians and a new system, we think there’s room for growth here.”

Growth would be a welcome change for a hospital that has been through a tumultuous four years. From 2008-2010, it has lost $5 million. Those losses and projected large infrastructure costs forced the city to look at affiliation options.

Joe Leoni was president of the city’s Hospital Commission, a powerful group charged with oversight. Three years ago city councilors asked the commission to explore affiliation options and help manage the process. That led to a request for proposals sent to 20 health systems. Fairview, St. Luke’s and Essentia were the final three candidates.

“Essentia answered what we needed,” Leoni said. “They agreed to put in immediate dollars, maintain employment and contracts and plan for future investment. This decision wasn’t easy, but it had to be done. Everyone realized the city couldn’t carry the burden.”

The Hospital Commission voted for the Essentia affiliation last summer and then sent it to the City Council.

VRMC has operated in the black since 2010. It showed a $1 million profit in 2011 and is showing a small profit so far this year. But CEO Bill Smith said the long-term projections made it clear that VRMC needed a different path.

“We cannot make it,” Smith said. “The facility is over 75 years old, and with the infrastructure and electronic medical issues, the financial needs are just too great.”

VRMC needs improvements costing $25 million, and patient volumes are down. It hasn’t been able to reinvest.

The need for change was felt throughout the entire community. Affiliating the hospital with another system meant even the city’s charter had to be changed. That referendum went to voters last fall, and an 86 percent majority approved it.

That doesn’t mean city leaders were convinced, though. The council needed five of seven votes to approve the affiliation, and it passed 5-2. Peterson was the most outspoken critic.

Nonetheless, he said “It’s a model that could work. I have my doubts, but I always tell people the same thing: I hope that I’m proven wrong.”

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