Many forces driving hospital consolidations, experts say

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• Virginia’s big question: Essentia or no?
• Essentia Health’s 124-year history

Several forces are driving the current wave of hospital consolidations, experts say.

Among them:

Health reform

The Affordable Care Act that Congress passed in 2010 adds technological burdens that challenge small hospitals, said Lawrence Massa, president of the Minnesota Hospital Association.

“It promotes the use of electronic medical records, and they’re very complex systems,” he said. “It’s very difficult for smaller organizations to do that on their own.”

Massa and Dan McGinty, chief administrative officer of Essentia Health’s East Region, both cited the new law’s move toward “bundled payments” instead of fee-for-service. That means, for example, that a patient would receive a single bill for everything involved in a hip replacement. Larger systems also are better-equipped to handle that change, they said.

“When the law first passed is when the phone started ringing” with calls from smaller hospitals, McGinty said. Interest has slowed as the U.S. Supreme Court considers whether the law is constitutional. But regardless of what the court decides, market forces are making some changes inevitable, he said.

As the rules governing hospitals become more complex, someone has to stay on top of it, McGinty said. “It’s very difficult for a small hospital to allocate enough resources to do that. And here we have resources. Instead of writing 14 different policies, we can write one policy and be done with it.”

Work force

Work force shortages are another reason for hospital consolidations. Recruiting physicians already is a major issue, particularly in rural areas, said Terry Hill, executive director of the Duluth-based National Rural Health Resource Center.

“I’ve been working in health care around here since the early ’80s, and it’s always been an issue,” Hill said.

Larger organizations such as Essentia Health have recruiting firms with access to physicians, Hill said.

McGinty said there’s an advantage to a community when its clinic and hospital are part of the same organization.

“When you talk to physicians, and we do a lot of recruiting all across our service area, they are looking for an integrated platform,” McGinty said. “They don’t want to use one computer system at a clinic and then learn a different one when they go to the hospital.”

That’s why when Essentia looks at affiliating with a hospital, it’s usually in a community that already has an Essentia clinic, McGinty said.

Competition

Although McGinty portrays Essentia’s expansion as being driven by smaller hospitals seeking help, the larger systems also have motives for trying to expand their territory, Hill said.

Essentia Health might feel it has to respond to Sioux Falls, S.D.-based Sanford Health, Hill said. “Sanford in particular has become very prominent in rural Minnesota,” he said.

“If Essentia doesn’t work with Virginia, what if Virginia basically works with Sanford, meaning now you’ve got big systems in your backyard that are going to be competing with you for patients,” Hill said. “The Iron Range has historically come to Duluth, and Moose Lake has historically come in here. But if they take that for granted, now what may very well happen is they will lose patients.”

It might look like empire-building, Hill said, but from the health system’s point of view it’s more like self-defense.

“I don’t think the leaders of these systems are looking to create an empire,” he said. “I think in very many cases they are intent on surviving in the environment that they’re living in, and a part of that is to have relationships with other hospitals and clinics.”

Rick Breuer, chief executive officer and administrator of Community Memorial Hospital, said the Cloquet hospital gets feelers from health systems. “I would guess every single facility gets inquiries,” he said.

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