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Does Grand Rapids have room for two?
Photo: With Grand Itasca in place, is there enough demand with a growing Essentia presence?
A move by Duluth-based Essentia Health to expand into the Grand Rapids market is raising new questions about what the future has in store for rural healthcare delivery.
Last November, Essentia withdrew a rezoning request to the city of Grand Rapids after local opposition surfaced at a city council meeting. The healthcare organization had wanted a rezone of 7.2 acres on Golf Course Road in Grand Rapids in order to expand its clinic presence. At the time, Essentia Executive Vice President of Clinic Operations Mike Metcalf told BusinessNorth the healthcare provider withdrew its request because executives preferred not to expand on a negative note.
Nearby Deer River Clinic merged with Essentia in 2012. When that took place, the Duluth-based healthcare organization inherited Meridian Clinic, which is located directly across from the Grand Itasca campus. Essentia executives contend that the current Meridian space is inadequate and there’s no room there to expand.
With 35 percent of the 35,000 Deer River Clinic patient volumes coming from Grand Rapids zip codes, Essentia plans to proceed with plans to build a 20,000- to 30,000-square-foot clinic with a yet to be determined number of healthcare providers. Metcalf said the system – which spans across Minnesota, Wisconsin, North Dakota and Idaho – is working with developers to find an alternative site for its new clinic.
Itasca County has a population of just more than 45,000. Yet, perhaps because of its large geographical footprint, it’s also home to three clinics and hospitals – Grand Itasca, Bigfork Valley and Deer River – as well as a few small, independent providers.
On a national scale, in-patient volumes are down 9 percent, noted Deb Boardman, CEO of Fairview Range in Hibbing. That’s due, in part, to changed Medicare rules that define in-patient and out-patient services, she said.
Clinic visits also have been flat, Boardman said. Although the Affordable Care Act is insuring more people, which some believe will drive up healthcare demand, the impact on healthcare “remains to seen,” she said.
Essentia executives say that their Grand Rapids patient volumes are rising and driving the expansion move. Like others, however, Grand Itasca executives contend that in most respects, its own patient volumes are flat.
“There’s an oversupply of clinical capacity here already,” said Grand Itasca CEO Mike Youso.
Youso’s assessment of his own organization is supported by the numbers. Net revenues for Grand Itasca have changed little in recent years at $76.9 million, $73.3 million and $75.3 million in 2013, 2012 and 2011, respectively.
The Grand Rapids-based CEO said he finds Essentia’s move additionally perplexing because Grand Itasca already sends nearly all of its specialty referrals to them.
Youso said he’s not afraid of competition and reports that it can “raise the bar.” But he questions how a larger Essentia presence will impact a market that lacks critical access designation, which ensures reimbursement rates above costs, and is heavily dependent on Medicare and Medicaid patient volumes.
The move from independent healthcare providers to large healthcare systems is a function of market forces at play. Those same market forces put independent providers at a disadvantage due to the large expenditures required to make those transitions.
The pressures on smaller healthcare players have been evident. In addition to Deer River’s merger with Essentia in 2012, there have been others. At the beginning of 2013, Virginia Regional Healthcare Center – one of the last city-owned hospitals in the area, joined the Essentia group after spending many quarters operating in the red.
“It’s become harder and harder to see how you can be independent totally,” Boardman said.
“In general, healthcare has to become more collaborative,” he said.
While many regional healthcare organizations have opted to merge with larger groups, a move like that may go against the grain of Grand Rapids culture.
Grand Itasca stakeholders have a long history of fighting for independence. In 1997, Itasca Medical Center (IMC), the previously county-owned facility, moved into an agreement with an entity called “Partners” (Benedictine Health Systems, St. Mary’s Duluth Clinic and Allina Health Systems). Under terms of the agreement, IMC was reorganized as a nonprofit and the Benedictine System agreed to a $14.2 million credit enhancement note that would allow bonding to build a new facility. Not long after, the Partners were released from that enhancement note and the healthcare facility
was restructured as a community-owned facility under the direction of an 11-member board.
Grand Rapids businessman and Grand Itasca Board Member Mike Ives has been involved with the clinic and hospital for a number of years as well as serving as board chair. He recalled that the alliance with the Partners had a mission – to build a new hospital.
“The Benedictine System wanted to build with new revenues and it became apparent that wasn’t going to happen,” Ives said.
Once the clinic and hospital cleared its path to independence, and thanks to a $20 million grant from the Blandin Foundation, a new facility was on the drawing board for Grand Rapids. The new clinic and hospital, which carried a $65 million price tag, was unveiled to the public late in 2005 and opened its doors in 2006.
Like Youso, Ives questions the move by Essentia.
“I’m not quite sure why they want to come back,” he said. “I don’t quite see how they make money at that.”
Healthcare, largely thanks to the passage and implementation of the Affordable Care Act, is in a state of flux. No one’s quite sure what the future has in store, but some healthcare futurists suggest the changing dynamics could result in as little as eight large healthcare systems throughout the entire nation.
For Metcalf, that scenario isn’t necessarily a bad thing.
“I’m a firm believer in integrated healthcare – and not just hospitals but physicians,” he said. “Being tied to a system is the reality of where healthcare is going. The quality of care goes up and the cost goes down.”
That doesn’t mean, however, that large healthcare system partnerships or takeovers will always go smoothly. In the fall of last year, Essentia and the International Falls hospital decided to end an affiliation that began in 2009. The affiliation agreement officially ends in June of this year. Both local hospital board members and Essentia executives cited differences in vision as the primary reason for parting ways.
In communities with aging infrastructure, however, joining a system with the resources to reinvest may be all but a given.
“Even if you’re financially solvent, mergers are definitely being driven by capital investment needs,” said Boardman.
Although Grand Rapids has a relatively new healthcare campus, financial pressures as well as the need to connect to specialty services mean that some form of collaboration will remain vital to Grand Itasca’s future.
“In a perfect world, we need a partner in Duluth and we need a partner in the Twin Cities,” Youso said.
Metcalf said Essentia would be willing to entertain partnership, collaboration or even merger talks with the local provider. Whether the local clinic and hospital can remain on its current path with a larger competitor expanding, coupled with rapidly changing dynamics, remains to be seen.
“Economics is a driver for consolidation,” Youso said. In today’s market “you have to have economies of scale. That’s getting harder and harder.”Previous BusinessNorth Exclusives Articles:
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