Iron Range hospital finds new life with Essentia in charge

Virginia Regional Medical Center was losing money and patients in 2011 at rates that made closure almost a certainty.

Voters faced a hard choice: Surrender control of their city-owned hospital or risk watching it fail.

They surrendered, agreeing to let an outside health system run the hospital. City officials in 2012 signed a controversial deal with Duluth-based Essentia Health to take over the operation.

Critics questioned if Essentia would deliver what it promised. Three years later, though, even some skeptics say that while concerns remain, Essentia has made things better.

The health care system says it's spent $7 million upgrading the facility, per the lease agreement and has paid down nearly $6 million in hospital debt. The city still owns the hospital but Essentia can buy it outright once the bonds are satisfied.

"It was a difficult decision to make but it was necessary," said Virginia Mayor Larry Cuffe, Jr. The city was out of options and without the lease agreement with Essentia, the hospital would probably be closed by now and lost upward of 500 good jobs — comparable to a big Iron Range mine shutting down, he said.

"It could have had an adverse effect and a domino effect on our economy," he added.

Veteran emergency room nurse JoAnn Miklovich was among the skeptics in 2011. She and others worried jobs would disappear and that the hospital would become a barebones satellite operation, sending patients 65 miles away to Essentia operations in Duluth.

Miklovich, though, isn't complaining and says Essentia has improved the hospital's operations. "They have the expertise to run a hospital versus what I saw in our city-owned management," she added.

Around the country, these kinds of deals can go very differently. A lot of rural hospitals have been consolidating with larger care organizations and often the smaller facilities see little new investment or growth, said University of North Carolina rural health care expert George Pink.

"A lot of the rural hospitals that are being acquired, they have expectations of capital being infused, profitability turning around and then debt relief," he said. "What we found is very little evidence that that is actually happening."

There is plenty of evidence Essentia is investing in the Virginia hospital.

That includes a new $1 million state-of-the-art lab where numerous tests are done in the same area. It replaced lab facilities spread out over several rooms.

Hospital administrator Dan Milbridge says Essentia's investments make sense from a business standpoint, because the Virginia hospital will help the company manage its caseload across the system.

"Our intent is actually to beef up this hub so we can keep more patients from the northern region hospitalized here instead of sending them to Duluth," he said. "That also frees up tertiary beds down in Duluth for even the sicker patients."

Essentia also says it hasn't changed its price structure at Virginia apart from inflation adjustments.

Despite Essentia's infusions of capital, the hospital's workforce is down about 2.5 percent from two-and-a-half years ago — 495 versus 508. Annual payroll, however, is up by more than $400,000, because the mix of jobs has changed to higher-skill, higher-pay positions.

Milbridge says he thinks apprehension among staff members about Essentia's motives has eased as they've seen all the investments. However, the union that represents roughly 200 of the hospital's employees, says relations with Essentia are not good.

AFSCME Council 65 says the company is refusing to honor certain benefits in the contract the union negotiated last fall. The union has filed a complaint with the National Labor Relations Board as a result. Essentia declined to comment.

Another union is pressing for changes as well. The Minnesota Nurses Association wants more nurses on staff, but that position predates Essentia taking control.

Still, it's hard to find anyone wishing for the old days.

Essentia is much better suited to run the hospital than the city, said Gail Baribeau, a retired nurse who once sat on the Virginia hospital board and now serves on a board advising Essentia.

"We were lay people," she said. "Some of us had some kind of medical background or knowledge base but many of them on the board did not come from a medical background. There wasn't the expertise available to us that there is in a corporate situation."

Virginia City Council Member Charles Baribeau says he hopes the partnership with Essentia will end up with the big company buying the hospital.

"We do not want to go back into the hospital business," he said.