In a bid to spark cost-controlling hospital competition, Blue Cross and Blue Shield of Minnesota will partner with Dakota Clinic to build a new acute-care hospital in Fargo, N.D.
The insurer says it's fed up with the high cost of inpatient care in North Dakota, where some 100,000 of its enrollees go for hospital services.
The move by the insurance plan to get into the hospital business comes as more and more hospitals are getting into insurance-some with disastrous financial results (See stories, pages 2, 3 and 14).
In Fargo, "something needed to be done," said Blues spokesman Amy Pak. She said the insurer has no desire to operate hospitals as part of its overall strategy.
The plan lost $10 million on operations in 1997 (See story, p. 3).
In 1996 the adjusted cost per discharge for hospitals in North Dakota was $6,126, 26% higher than in Minnesota, according to the Center for Healthcare Industry Performance Studies in Columbus, Ohio. The number of hospitals in Fargo has dwindled to two from four in the past decade.
Dakota Clinic's 175 physicians refer nearly all their patients to 203-bed Dakota Heartland Health System in Fargo. But the clinic says it has been unable to create an integrated delivery system with Dakota Heartland and its owner, Houston-based Paracelsus Healthcare Corp.
The clinic and the insurer announced the project last month. Each will loan $5 million in seed money to a new not-for-profit corporation, which will own and operate the 70-bed facility. It will include a chest-pain evaluation unit and private rooms. The clinic and the insurer will share governance.
The clinic plans to move most of the 80 physicians at its main clinic in Fargo to the new facility, slated to open in about two years. No regulatory approval is required because the state has no certificate-of-need law.
The clinic said it offered to buy Dakota Heartland, but Paracelsus declined. Just last month, Paracelsus bought a remaining 50% interest in the facility from a local not-for-profit foundation.
Dakota Heartland was the product of mergers of three not-for-profit hospitals. It became for-profit in 1994 when a partial interest was acquired by Champion Healthcare Corp., which Paracelsus bought in 1996.
"Paracelsus is a hospital-driven system. We're a physician-driven system. And there are basic differences in the care-management process that we envision," said Dakota Clinic President Russ Kuzel, M.D.
He said those differences cross "virtually every line of care management." For example, he said, the physicians don't want inpatient prescribing patterns to be dictated by a formulary based on the hospital's bidding process.
John Korsmo, Dakota Heartland vice president of physician relations and network development, said he still would like to come to an agreement with Dakota Clinic.
But, he said, the clinic doctors "want to put together an integrated system where all the dollars end up in their pockets, and unfortunately that's just not realistic."
Dakota Heartland has voiced opposition to the new hospital, saying it isn't needed.
Dakota Clinic and the Minnesota Blues have been partnering on health insurance products since 1994. They contend the new facility will increase efficiency by locating outpatient specialty areas adjacent to inpatient areas, giving hospitalized patients and their families better access to doctors.
Other key players haven't taken sides. Fargo-based MeritCare Health System, which has a network of 200 physicians and owns a 311-bed hospital, has taken no official position on the project. Its representatives declined to be interviewed by MODERN HEALTHCARE.
The state's largest payer, Fargo-based Blue Cross and Blue Shield of North Dakota, did express concern that adding a third hospital could lead to overcapacity, both in terms of hospital beds and physicians.
"We believe that the best solution would be for Dakota Clinic and Paracelsus to come to some understanding," said Michael Unhjem, president and chief executive officer of the North Dakota Blues.