North Memorial Health Care

Jul 29, 2010 — Star Tribune

Chen May Yee

Jul. 29, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- In the recent, bitter round of contract talks with nurses, perhaps none of the Twin Cities hospitals had as much to lose as North Memorial Health Care in Robbinsdale.

The metro's smallest health system lost money on operations last year and is on track to lose money again this year, amid a weak economy and heavy investment in a new hospital in Maple Grove. While giants such as Allina and Fairview could have probably weathered a protracted nurses strike, North could ill afford to.

Now, with a contract signed and a strike narrowly averted, it can focus on getting back into the black, CEO David Cress said.

"Look around ... when has a strike ever made sense?" Cress asked. On the final settlement, he said: "Nobody got everything they wanted. It was a good contract."

A strike would have forced North to fly in expensive replacements, pay nonstriking employees overtime while at the same time hurting business as patients delayed procedures or switched to other hospitals. According to a Moody's analysis of several hospital systems, even if costs went up just 1 percent, operating income would fall by 24 percent.

It also would have delayed ongoing efforts to redesign the way the hospital provides care under state and federal health reform. Like other hospitals, North is trying to reconfigure teams of doctors, nurses, educators and other support staff to provide better care for less money.

It's also in the midst of introducing a new electronic medical record system that can be accessed by everyone from primary care doctors to emergency physicians.

For all those reasons, Cress said, "we didn't want a strike. It takes years to recover from that kind of confrontation."

North was just one of six metro hospital groups negotiating with nurses for a new three-year contract. The others were Allina Hospitals and Clinics, Fairview Health Services, HealthEast Care System, Children's Hospitals and Clinics, and Park Nicollet Health Services.

With $654.5 million in revenue last year, North had about half the revenue of the next group up, Park Nicollet Health Services.

The Minnesota Nurses Association, which represents 12,000 nurses working for the hospitals, eventually backed down from demands for rigid nurse-patient ratios, which the hospitals said would add millions to costs. The hospitals in turn withdrew demands for cuts to nurses' pensions and health insurance in a compromise deal reached early this month.

Not recession-proof

Labor issues are just one of the many financial challenges facing hospitals.

"Our margins are being squeezed by all sorts of things: changes to General Assistance Medical Care, federal health reform and the associated reimbursement cuts, uninsured and charity care, etc.," said David Kanihan, an Allina spokesman. "The agreement with the MNA, in the short term, just preserves status quo."

Hospital officials note that the recent recession showed for the first time that health care is not recession-proof. Most of the metro hospital groups lost money in 2008, but cut costs and shed workers to climb back into the black last year.

While North cut 380 positions at the end of 2008 and another 100 last May, it still showed an operating loss of 1.2 percent last year. Investment gains helped its bottom line up to a profit of $41.5 million.

Last year, admissions at North's 518-bed hospital in Robbinsdale were down across the board, as were surgeries.

Then in December, North Memorial Health Care opened a new hospital in Maple Grove. That venture is bringing in new patients but also pulling some away from Robbinsdale.

Maple Grove Hospital was conceived at a time when health care was booming and metro hospitals competed fiercely for the chance to build the area's first new hospital in 10 years.

North and Fairview banded together and won that right, with the new hospital owned 75 percent by North and 25 percent by Fairview.

But by the time the cranes left last year, the market had turned and the new hospital suddenly looked less like a cash cow than a potential white elephant.

Beating projections

As it turns out, Maple Grove Hospital saw more than 1,700 admissions in the first half of this year, about 35 percent more than projected. Doctors there delivered almost 900 babies in that period, some 70 percent more than projections. Some of that success has come at the expense of Robbinsdale.

Overall patient volumes are up 8.6 percent this year, Cress said, but that's for two hospitals vs. one last year.

"Bringing on a new hospital, that's dragging on our financial performance this year," he said. He expects positive operating income next year.

North's operating margin in the first six months of 2010 was negative 4 percent, worse than last year's negative 1.2 percent. With a largely blue-collar patient population hit by job losses in the recession, the hospital served more Medicaid patients even as it provided $26 million in unpaid care last year.

North's financial woes have sparked talk that it's exploring a sale or merger with a bigger hospital chain.

For the record, Cress said, that's not true: "We have never been in any conversations with Fairview, with Allina, with Mayo about this."

Staying independent, he said, "allows us to better serve our communities."

Chen May Yee --612-673-7434

Newstex ID: KRTB-0281-47420026