Q&A: Mercy Explores Possible Affiliation with Essentia Health
Leaders at Mercy Hospital recently announced that they are exploring the possibility of starting a new relationship with Essentia Health, based in Duluth. The two organizations signed a memorandum of understanding in December, formally kicking off a process to determine whether they will enter into an official affiliation agreement.
The due diligence process with Essentia Health is just getting underway. Due diligence is the investigation into the details of a potential agreement, such as an examination of operations and management and the verification of material facts. Through this process, Mercy and Essentia Health will address the many questions that need to be answered before a final decision can be made about an affiliation agreement. The target date to reach a potential agreement is October 1, 2011.
Mercy is committed to keeping its employees and the community informed as the integration talks continue. Please watch for periodic updates. Mercy is also planning to conduct focus groups to gather input from community members throughout our hospital district. In addition, Mercy leaders continue to welcome any questions.
Listed below are answers to questions asked about the possible affiliation.
- Mercy Hospital has a history of independence and financial stability. Why is Mercy’s Board considering this affiliation?
Examining this option with Essentia Health allows us to consider new ways of meeting the challenges that healthcare reform will bring to smaller hospitals. This affiliation would allow us to continue our commitment to the community, while discovering new and more cost-effective opportunities to offer more coordinated care.
An affiliation also would allow for an enhancement in services, including more specialized care coming to the community. By coming together, we believe we can bring both stability and growth to the healthcare community in the Moose Lake area.
We’re not the only community hospital in Minnesota seeing the benefit of exploring this kind of relationship. It’s becoming a common model across the state. - Is this affiliation a "done deal"?
No. While both parties support the concept of integration, no final documents have been agreed to or signed. Actual terms of any agreement will need to be worked out in coming months. - Is this possible affiliation related to the sale of the nursing home?
No. Although the timing of these developments seems to dovetail, the decisions regarding the future of the nursing home and the hospital were made separately for different reasons. The sale of the nursing home was driven by operating losses in the nursing home that threatened the viability of both the nursing home and hospital.
The hospital’s possible affiliation with Essentia Health is driven by health reform efforts that will require new ways of providing cost effective, coordinated care to our patients. In both cases, however, the goal was and is to keep needed medical services in the community, with an eye to the long-term viability and growth of both the nursing home and the hospital. - Why did Mercy choose to talk with Essentia Health?
We approached Essentia Health about the possibility of a new affiliation for a number of reasons. Essentia has demonstrated a commitment to providing high quality care that’s close to patients’ homes. This is in line with our values and goals. Also, we have found that a majority of our patients seek specialty care from Essentia Health, which made it a natural fit. - How would this affiliation work? Who owns the hospital?
In the scenario currently under discussion, the local hospital district would continue to own the assets of the hospital. Essentia Health would then lease the assets and operate the facility. - What level of local control will remain in the community?
A new integrated organization would be formed with local representation to operate the hospital. - Would Mercy become a Catholic hospital if an affiliation agreement is reached?
No. Essentia Health includes both Catholic and secular facilities, and Mercy would remain a nonprofit, critical access hospital without a religious affiliation. - What does this mean for the proposed new facility plan?
As part of the affiliation discussions, Essentia Health will evaluate Mercy’s existing strategies and facility goals to determine the affordability of the recommendations. - What could this affiliation mean for employees?
We recognize that employees have a lot of questions right now. Unfortunately, many answers are still unknown, as we are in the initial discussion phase. The goal of this affiliation would be to help grow services at the hospital, which could create new job opportunities. However, we must also seek efficiencies, so there could likely be changes for some employees. Essentia Health is committed to retaining employees whenever possible. - What does it mean for services/programs?
We believe an affiliation would allow for an enhancement in services, including more specialized care coming to the community. - What does this mean to Gateway Family Health Clinic?
The physicians from the Gateway Family Health Clinic will continue to be welcomed into our facility to treat patients, as part of our open medical staff for physicians. - Why not partner with Gateway?
At Mercy’s invitation, a group of Gateway physicians took part in the hospital’s recent strategic planning process in which an integrated business model was discussed.
Even if integration with Gateway had been possible, the need to affiliate with a larger health system would still have been likely. More and more independent hospitals are affiliating with larger health systems due to the changes health reform will bring to small hospitals. It is in the hospital district’s best long-term interest to affiliate itself with the stability and resources of a larger, established health system. Essentia Health is a system that shares Mercy’s commitment to providing quality care in rural communities. - What does this mean to Essentia Health-Sandstone (Pine Medical Center)?
Essentia Health will continue to maintain its hospital in Sandstone as well. By having two facilities in the region, there may be an opportunity to recruit additional physicians to live in the area and/or to provide additional outreach services from specialists. - Is there specific legislation that sets up the Hospital District?
Is there some enabling legislation which allowed the District to form? Hospital Districts are permitted to be organized by Minnesota Statutes Sections 447.31 through 447.38. Minn. Stat. 447.31 explains that actual process and provides information concerning the general powers of the Board. Mercy’s legal counsel is not aware of any special enabling legislation being adopted by the state legislature to establish the Hospital District, but rather understands its formation was accomplished by the adoption of resolutions by the affected cities and townships. The resolutions should be recorded with the Carlton County Auditor. (The legislation authorizing the creation of hospital districts was originally passed in 1959). - How was the make up of the Board established?
By law or some other method? If it is established by law, how would this "merger" impact the make up of the Board? Can this make-up be changed? Were there any powers given to the Board that cannot be delegated to someone else? Can this Board be altered of changed without legislative or voter approval? The makeup of the Board is in accordance with Minnesota Statutes. Pursuant to Minn. Stat. 447.32, Subd. 1. Terms of office. "Each hospital district shall be governed by a hospital board composed of one member elected from each city and town in the district and one member elected at large. A member's term of office is four years commencing on the first Monday in January and until a successor qualifies."
The proposed transaction with Essentia Health/SMDC is not a merger and as such would have no impact on the make up of the Board. The only way the "make up" of the Board can be changed is either by election of new Board members or by a township or city being added or withdrawing from the Hospital District. There are powers granted to Board members that cannot be delegated to someone else. Those powers are principally related to the functions of the Board in serving as the governing body of the Hospital District. That does not mean, however, that certain functions associated with the operation of the Hospital District or the implementation of Board directives cannot not be delegated to others. Such delegation is limited and would not include the rights specific to the functioning of the individual as a member of the Board. Absent the death, resignation or failure to qualify of a Board member or the Board member moving from the District, the Board cannot be altered or changed absent legislative or voter approval. - Does the Board have the power to tax the residents of the District?
Could a non-elected Board or Essentia have the power to tax the residents of the District? The Hospital District has the obligation to pay the expenses of operating the hospital out of the revenues derived from the operation of the hospital, and to the extent necessary, from ad valorem taxes levied by the hospital board on all taxable property within the district. Again, there is not a merger occurring and the power to levy taxes, if necessary and appropriate for the operation of the hospital and the maintenance of the facilities remains with the Hospital District Board. No non-elected Board or Essentia would have any power to tax residents of the District.