Blue Cross and Blue Shield of Minnesota relinquished its 50% interest in Innovis Health, Fargo, N.D., five months after a deal fell through to sell the 74-bed, not-for-profit hospital to an out-of-state chain.
The move means that physician-owned Dakota Clinic, Fargo, will be the sole owner of the $90 million hospital, which opened in November 2000 to compete with two larger local rivals, 583-bed MeritCare Health System and former 110-bed Heartland Health System. Under the deal, Innovis will refinance a loan to pay back the Minnesota Blues for its startup costs to build the hospital. Specific terms weren't given. The deal, which has already been approved by North Dakota's attorney general, is expected to close in the summer.
Dakota Clinic decided to build Innovis in 1998, after a falling out with Heartland over the termination of a lucrative deal in which the clinic provided ancillary services to the hospital. The clinic found a partner in the Minnesota Blues, which was looking to control high inpatient costs in neighboring North Dakota, where a portion of its 2.6 million enrollees go for hospital services. "At that time, Blue Cross saw an opportunity to create healthy competition in the area," said the insurer's spokeswoman, Jan Hennings. The next year, Innovis steadily siphoned away Heartland's patients, forcing the hospital to cut services until January 2002, when it was acquired and later shuttered by MeritCare.
The Minnesota Blues had planned to return to its core insurance business for some time. In September 2003, the Blues and Dakota Clinic signed a letter of intent to sell Innovis to Catholic Health Initiatives, which operates 69 hospitals in 19 states. That deal fell through in January 2005 after the parties failed to agree on terms.
"Innovis has grown and stabilized to the point where we felt Blue Cross funds were no longer needed," Hennings said. Greg Glasner, chairman of Dakota Clinic's board, said, "Innovis needs to expand, but Blue Cross didn't want to keep investing in hospitals. ... We're going to go it alone." Innovis has operated in the black since 2002, Glasner said. The hospital earned $5.8 million on revenue of $136.9 million in 2003, the most recent year for which data are available, according to the American Hospital Directory.