Health reform forces small-town hospital to look for partner

A tiny hospital in New Prague, Minn., has decided it can no longer operate independently under the new federal health reform law.

Queen of Peace Hospital withstood the wave of consolidation that swept the industry in the 1990s. But now its leaders are trying to link up with a larger health system to ensure the facility's survival.

In the early 1950s, the community of New Prague, southwest of the Twin Cities, built Queen of Peace. It asked the Sisters of St. Benedict to run the hospital, and they agreed. The order sent eight nuns to staff the hospital, including Sister Catherine McInnis.

McInnis just retired after spending the last 58 years of her life working a variety of jobs there. She started by scrubbing floors, and worked her way up to chief financial officer.

"It wasn't a big institution like Mayo or Abbott Northwestern, but we knew the people," said McInnis. "We knew them, and I knew every person in New Prague -- four generations."

Even though the hospital is tiny, with only 25 beds, it offers a wide spectrum of services, including primary care, general surgery, orthopedic surgery and respiritory therapy.

The hospital serves a market of about 50,000 people, and over nearly 60 years it has been self-sustaining.

"Budgeting and health care reform ... is a big black hole for us."

"We ... have always asked the question, does it still make sense for Queen of Peace to be an independent, stand-alone hospital?" said Mary Klimp, CEO of Queen of Peace. "And every year, including last fall, we answered 'yes.'"

When Congress passed health reform in March of this year, the hospital's board of directors began to hesistate. Under health reform's new payment system, hospitals will bear more financial risk. Instead of getting paid by the procedure, they'll get paid a lump sum depending on diagnosis.

For example, if a person gets a knee replaced and the hospital does it for less money than the payment, the hospital gets to keep the difference. But if complications require more care, the hospital could have to eat the extra cost.

Klimp says there's no clarity about how that will work in practice.

"Budgeting and health care reform -- as I look at it and as I talk to my colleagues -- is a big black hole for us," said Klimp. "I don't know everything I need to know about how it's going to impact us."

So Queen of Peace decided that if it wanted to continue providing primary and emergency care to the region, it would have to join a larger health system.

The hospital hasn't chosen a partner yet, and the form of the deal is still in flux, but Queen of Peace officals are talking with the Mayo Health System.

Queen of Peace's chief financial officer, Anna Herrmann, says small hospitals joining forces with others is the new reality.

"You're looking at closer affiliations. And it's by no means disregarding the fact that ... having small, independent hospitals is a real dear thing to us in these communities," said Herrmann.

The head of the Minnesota Hospital Association, Lawrence Massa, says these kinds of changes can be worrisome to smaller towns.

"There's always the fear in a smaller community that if you move the decision-making authority for your community's health system to another town, farther away, someone might say, 'We don't really need that anymore,'" Massa said. "There hasn't been much evidence that folks who have affiliated with other systems have actually experienced that."

For her part, retired Sister Catherine McInnis isn't dreading the change -- but embracing it.

"I think we'll be able to increase some of our services. Just being connected to a larger facility is going to help in our planning," she said. "It's just the better thing for us to do at this time. The present staff, they have a firm foundation they really know what health care's all about."

The hospital hasn't announced a timeline for deciding with whom to join, only that it will keep the community updated.

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