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International Falls hospital, Essentia part ways

By John Lundy / Duluth News Tribune

After spending the past four years as affiliates, the hospital in International Falls and Duluth-based Essentia Health have decided to end the arrangement and go separate ways.

“We concluded that our visions for health care are just so far apart that we don’t see any point in trying to go further at this point,” said Dr. Daniel Nikcevich, president and chief medical officer of Essentia’s east region, which includes its Minnesota and Wisconsin facilities.

A clinic long has given Essentia a presence in International Falls. But in 2009, Essentia and the local hospital, then known as Falls Memorial Hospital, began an affiliation agreement. That meant the hospital remained independent, run by a board split evenly between the hospital and Essentia appointees. Essentia provided management and professional services under two additional agreements.

The hospital became Rainy Lake Medical Center, or, technically, Falls Memorial Hospital doing business as Rainy Lake Medical Center.

The affiliation agreement ends on June 30, 2014, and as that date approached the two parties began to look at a closer arrangement, known as integration. That would make the International Falls hospital as much a part of Essentia as St. Mary’s Medical Center in Duluth is.

But as the two sides talked, the differences became clear.

“We were quite a ways apart,” said Susan Congrave, one of seven members of the hospital side of the board, who refer to themselves as the Falls Memorial trustees.

Only those seven members would have had a say in an integration deal, since Essentia-appointed members would have a conflict of interest. And all seven of those members voted against Essentia’s proposal, Nikcevich said. They also voted to terminate their management and professional contracts with Essentia, he said. That’s what prompted Essentia to suggest ending the affiliation in what both sides are calling an “unwind.”

The issue from the International Falls perspective was that revenue Essentia had projected hadn’t been realized, Congrave said.

Bob Anderson, another board member and the city’s mayor, agreed. The hospital was doing well financially before its affiliation with Essentia, he said, but hadn’t made any headway during the past four years.

Nikcevich doesn’t dispute that, but he said the partnership coincided with a time, from 2008-12, when health-care revenue everywhere was lower.

A key point in Essentia’s integration proposal was an offer to build a new hospital in International Falls. The site already was determined, Nikcevich said: between the clinic and a Good Samaritan Society complex that’s being developed. The latter made its plans for kitchen and laundry facilities on the assumption that they also could serve a hospital, Nikcevich said.

The hospital has $11 million in the bank, said Anderson, for whom building a new hospital is still a priority. Rainy Lake Medical Center has all the technology a hospital needs, Anderson said, but it’s not laid out for the increasing emphasis on outpatient services at today’s hospitals.

Nikcevich said the hospital board hired two consultants, both of whom said Rainy Lake Medical Center didn’t have sufficient debt capacity on its own to build a hospital. Instead, the consultants said, its best route to a new hospital was fully integrating with a health system, and Essentia was the best choice.

Congrave said she no longer sees building a hospital as a priority. She pointed out that Rainy Lake Medical Center is newer than either St. Luke’s hospital or St. Mary’s Medical Center in Duluth. Instead, she’s concerned about hiring a CEO for the long haul and attracting more specialists to the community.

A sore point for both Anderson and Congrave is the $11 million, which would become part of Essentia’s assets with integration. Essentia pledged $2 million of that for the Rainy Lake Medical Center Foundation, Congrave said, but the rest of the money would be lost.

But all of that money would have gone toward International Falls hospital construction, Nikcevich said.

Anderson said his model is Community Memorial Hospital, an independent hospital in Cloquet that recently has expanded.

But that doesn’t mean International Falls will be all alone, he said.

“We’re going to work with Essentia,” Anderson said. “Many of us have been patients of the old Duluth Clinic (or) St. Mary’s Hospital (Essentia’s precursors) for decades. I don’t see that changing.”

For his part, Nikcevich said he personally regrets the breakup not only as an Essentia official but a hematologist and oncologist who practices in International Falls and a property owner who has a cabin on Rainy Lake.

Although the affiliation agreement doesn’t end until June 30, Anderson and Congrave said they believe the unwind could be completed by Jan. 1.

Neither side seems to see any near-future hope of ending the separation. But Nikcevich isn’t saying never.

“Perhaps the timing will be better at another point,” he said. “That’s possible. And if so, we’d be happy to talk again.”

Essentia's Northland expansion

Essentia Health has been on an expansion track for several years, particularly in communities that already have Essentia clinics.

Here’s a brief synopsis of some communities that have or have not decided to join with Essentia:

Aurora: Aurora’s White Community Hospital joined with Essentia in 2010 and became Essentia Health-Northern Pines.

Deer River: The hospital reached an affiliation agreement with Essentia in September 2012 and became Essentia Health-Deer River.

Ely: Ely-Bloomenson Community Hospital remains independent, although the hospital and Essentia Health have on occasion had talks about a possible partnership. Last December, the hospital’s shareholders approved structural changes that would make it easier for the hospital to merge with another organization.

International Falls: The board that governs the Rainy Lake Medical Center and Essentia Health are “unwinding” an affiliation agreement that began in 2009. The hospital will continue to operate independently.

Moose Lake: Mercy Hospital remains independent. Affiliation talks with Essentia broke down in 2012. Unlike the other communities listed here, Moose Lake doesn’t have an Essentia Health clinic.

Sandstone: After nearly a year of often acrimonious talks, Essentia and the North Pine Area Hospital District board signed a three-year lease agreement for the operation of Essentia Health-Sandstone in August 2012. It renewed a lease originally signed in 1997.

Virginia: The City Council voted in September 2012 in favor of affiliating city-owned Virginia Regional Medical Center with Essentia. The hospital became Essentia Health-Virginia.

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