Virginia to tell Essentia ‘yes’ or ‘no’ on city's hospital

• Virginia Regional Medical Center

Virginia Regional Medical Center (News Tribune file)

Talk about it

The stakes are high as the Virginia City Council prepares to vote Tuesday on whether the city-owned hospital will affiliate with Duluth-based Essentia Health.

“The reality is if it’s a no vote, I don’t see how the hospital will survive over a year,” said City Councilor Charlie Baribeau, a proponent of the plan that would lease Virginia Regional Medical Center to Essentia, which already operates the adjacent medical clinic.

A yes vote essentially would end local control of the 76-year-old hospital, which has 450 employees. But it comes with Essentia’s commitment to pour resources that the health system, with $1.6 billion in revenues last year, can afford and the city of Virginia cannot.

Included is an up-front commitment to spend $7 million on infrastructure upgrades. To get that kind of money, Baribeau said, the city would have to double its property tax levy.

“We can’t do that to our taxpayers,” he said.

Essentia envisions the hospital, which would be renamed Essentia Health-Virginia, as a secondary hub. Essentia’s facilities in Hibbing, Chisholm, International Falls, Ely, Babbitt and Aurora would feed into Virginia.

Still, affiliation isn’t a slam-dunk. Before the City Council could vote, the Virginia Hospital Commission had to approve, which it did on June 25 in a 4-2 vote. But that was a close call, because approval required a two-thirds majority. With one member of the seven-member commission abstaining because of a relationship with Essentia, four votes was the minimum needed.

All six councilors and Mayor Steve Peterson are eligible to vote. Council approval also requires a two-thirds majority, meaning at least a 5-2 vote. Baribeau said four yes votes, including his own, appear to be solid.

He counts Peterson and Councilor Nevada Littlewolf — who could not be reached for this story — as likely “no” votes.

“We need a fifth,” Baribeau said. “I think we have a fifth vote.”

But he declined to name the councilor who still might be uncertain.

Peterson said he knows how he’ll vote but won’t say until the meeting. Nor is he certain what the result will be.

“Some folks on the council are not real sure yet,” Peterson said. “I’m not polling them for their votes. I know there have been a lot of questions. It’s obviously going to be the biggest decision this council will make for the people of Virginia.”

In phone interviews, Councilor Don H. Sipola said he will vote yes. Councilor Larry Cuffe Jr. said he will raise a couple of questions at Tuesday’s meeting but is leaning toward yes. Neither would speculate on how their fellow councilors might vote.

“If it doesn’t pass, I don’t know how much longer we could sustain a hospital in the city of Virginia,” Cuffe said.

The remaining councilors, Mike Ralston and Louis Russo, couldn’t be reached for this report.

The hospital has been largely in the black since 2010, although it lost $190,000 in July, according to a Mesabi Daily News report. But Baribeau said the hospital’s financial future is grim because of unavoidable costs down the road.

For example, he said, the transition to electronic record-keeping will cost $3 million. Not making the transition would mean a 10 percent cut in reimbursements from Medicare.

And millions of dollars in needed infrastructure improvements have been identified.

The initial $7 million commitment from Essentia would include the money for electronic medical records, said Dan McGinty, chief administrative officer for Essentia’s East Region. In addition, Essentia would assume payments on current outstanding bonds, also totaling $7 million.

Essentia also would pay off two anticipated bonds as part of the lease, one beginning in five years for $10 million, and the other beginning in 10 years for $15 million, McGinty said.

But Peterson said he finds the bonds worrisome. What if the affiliation deal ends before the bonds are paid off, the mayor asked. Who pays then?

“The CEO of Essentia hasn’t signed a note saying, ‘Guys, if this goes south, we’re going to pay for it,’” Peterson said. “Why would they?”

He doesn’t want future councils and mayors to be shackled to a long-term financial agreement, Peterson said.

But there’s only one way that can happen, said Dr. Dan Nikcevich, president and chief medical officer of Essentia’s East Region.

“The lease obligates Essentia to pay the bonds in full,” Nikcevich said. “The city would not be left on the hook. What if Essentia walks away? Then Essentia has to pay the bonds. The only exception to it is if there was a unilateral decision by the city to terminate the lease.”

Peterson said his concerns in general stem from Essentia’s operation of the clinic. Their track record, he said, is “frankly, not very good.”

“There were a lot of promises being made right from the president of the company about how we were going to have a regional heart center, specialty and primary-care physicians,” he said in a previous interview. “Didn’t happen. Not only did it not happen, but the services that VRMC provided were starting to be absorbed by Essentia. That’s pretty much their mantra.”

McGinty has said that some of those promises occurred long ago, and there were differences of opinion as to whether they were kept. “Mayor Peterson is entitled to his opinion,” he said.

Peterson does agree that outside help is needed from somewhere.

“I think everybody realizes that we can’t be a stand-alone anymore,” Peterson said. “We have that consensus among us. But there’s not a lot warm, fuzzy out there.”

But there’s also no alternative to Essentia, Sipola said.

“There is no Plan B,” he said. “I think everyone agrees there is no Plan B.”

The structure of bond payments will be the subject of a hearing at 6:30 p.m. Tuesday in Virginia City Hall that immediately will precede the council meeting and vote.

If approved, the actual transition likely would take place on Oct. 31 or Nov. 1, Baribeau said.

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