A Minnesota county is facing a dilemma that's becoming more frequent these days. It can make a tidy sum by selling its hospital to an out-of-state, for-profit chain or much less by dealing with local, not-for-profit players.
The decision is so difficult, observers said, that the Itasca County board might take the previously unthinkable path of continuing to own 73-bed Itasca Medical Center in Grand Rapids, Minn., rather than making a choice.
Such predicaments are occurring in many places as for-profit and not-for-profit chains hungrily swallow other providers. In the past two years, roughly one in five community hospitals changed ownership, according to a MODERN HEALTHCARE*study (Dec. 18/25, 1995, p. 43).
The debate is "big bucks vs. integrated healthcare for the future," said Wanda Moeller, editor of the Grand Rapids Herald-Review, a biweekly newspaper that opposes sale to the for-profit firm. "For-profit means `for business.' That scares me and a lot of people. There are some that want to take the money and run."
Itasca County is in northeastern Minnesota, about 160 miles north of the Twin Cities. Some 40,000 people live in the area. The hospital, which includes a 34-bed skilled-nursing unit, earned $1.1 million on net revenues of $20.2 million in 1995, according to unaudited data.
Consultants have urged Itasca County to get out of healthcare, so last year it sought buyers, expressly requesting companies that would build a countywide integrated delivery system. Two very different bidders emerged.
One is Champion Healthcare Corp. of Houston, which would be the first for-profit hospital system in the state. It will operate 31 hospitals after a merger with Paracelsus Healthcare Corp. of Pasadena, Calif.
The other is a consortium of giant Minnesota providers. They include Allina Health System, Minneapolis, with 19 hospitals; Benedictine Health System, Duluth, with 17 hospitals; and 280-physician Duluth Clinic.
The group was pulled together by about 50 Itasca residents who wanted to ensure the hospital responds to community needs (March 4, p. 40).
Champion is offering $10 million in cash up front, $7.5 million in plant investments over five years and about $4 million in other considerations.
It promises local board representation, although it hasn't defined the structure, and an integrated system, said Bob Olson, Itasca County coordinator.
In contrast, the consortium wants to lease the hospital for $360,000 over three years. It also will pay $1 million up front for various items, assume about $5.7 million in liabilities, and invest $2.5 million in facilities and equipment during the lease.
A local nominating committee will appoint 14 of the 20 board members governing the new Itasca Health Care Network. In a written response to MODERN HEALTHCARE*questions, Benedictine President Barry Halm said the network also will study "patient demand, financing, payment arrangements and community support" for a new hospital.
McGladrey & Pullen, a Minneapolis accounting firm, evaluated the two proposals for the county. In a preliminary draft, which it says is subject to change, it puts the "financial impact" of the Champion proposal at $21.2 million and the consortium's at $8.9 million.
A 20-person advisory committee, however, recommended the consortium bid. The committee was appointed by acting hospital Administrator Tom Papin and made up of physicians, hospital employees and residents.
After interviewing bidders late last month, the county board decided to hold a public meeting May 16 for citizen input. "Even though they've been studying the issue for five years, it is a decision of huge magnitude," said Susan Clark of McGladrey & Pullen.
As it now stands, the board is leaning 3-2 toward Champion, Moeller said.
The proposals can't be evaluated just by financial terms, said Bob Loschieden, a commissioner who supports the consortium. "Champion has a very short track record," Loschieden said. "It appears they will buy, sell, trade, whatever looks best."
The remaining commissioners didn't return telephone calls or couldn't be reached.
According to Steve Giorgi, a representative of the local public employees union, some commissioners worry the consortium isn't spending enough up front to "see them really want to make this work."
The union dislikes both proposals because of the layoffs that most likely would occur, Giorgi said. He said he wishes the county would create a public-benefits corporation to run the hospital.
Both bidders said they are committed to the Itasca community.
"We have a history of going into the communities and putting money back into the hospitals," said Deborah Frankovich, vice president and treasurer of Champion. "I don't consider us flippers of properties."
Meanwhile, Halm said, "the consortium strongly supports the building of a new medical center." Its Itasca Health Care Network will "provide a full continuum of patient care at the lowest possible cost."
The board hasn't scheduled a vote on the matter.