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It's about commitment

Grand Forks needs some serious discussion before City Council decides whether to grant a five-year property tax exemption to backers of a 70-bed, privately owned hospital.

Grand Forks needs some serious discussion before City Council decides whether to grant a five-year property tax exemption to backers of a 70-bed, privately owned hospital.

Some public education may be in order, Rick Wade, senior vice president of the American Hospital Association.

The decision to build another general hospital is something that will have a significant long-term impact on the community, Wade said, so it is critical for the people of Grand Forks to figure out what the proposed privately owned general hospital is all about.

"The community has to ask some very hard questions (about Aurora Hospital) because they know how Altru behaves," Wade said.

He said the concerns raised by Altru officials regarding the need for a second general hospital are "absolutely legitimate." The debate, however, should not focus on for-profit versus nonprofit status.


Community focus

"It's not ownership that's the issue, it's commitment to the community," he added. Dr. Tom Peterson, a driving force behind the development of the Aurora Medical Park, said commitment to the community is one of the reasons he is developing the 12-acre campus on Grand Forks' south end.

Peterson grew up in the Grand Forks area, and graduated from UND's School of Medicine. He said a number of the physicians who currently practice at the Aurora Medical Park also are UND grads.

"These are hometown people who want to work on their own," he said. "They want to put up their own shingles, run their own shop. And that's very important. That's what I believe in."

Peterson said private hospital ownership for-profit status does not necessarily mean putting an emphasis on profit or the latest, most up-to-date technology.

At the end of the day, it's still about providing medical care, he said.

"Technology never supplants the best medical care. Medicine is still an art. I don't care how much technology we have, we're still a service. We provide services," Peterson said.



vs. nonprofitBut Altru physician Dr. William Mann said privately owned hospitals are still a business venture, which means investors will want to turn a profit. "If you are for-profit, you don't have an operating surplus, you have a profit," he said.

In a meeting with the Herald on Friday, Mann and other Altru officials expressed concern that competition would drive up the cost of local health care because it would focus heavily on high-profit services.

For Altru, it's something that could result in an increased emphasis on the bottom line, Mann said.

Altru is a community-owned, nonprofit hospital.

"Altru is the community. It is 100 percent owned by the citizens of this community," said Dave Molmen, Altru's chief operating officer.


Altru seems prepared to deal with another hospital in Grand Forks. Administrators say they expect to see a new hospital on the Aurora campus regardless of any city tax incentives for the hospital. For them, the issue is whether the City Council should grant a property tax exemption to a competitor.

"We are not afraid of a 70-bed hospital. We don't think they should have a tax abatement to be here," said Altru president Dr. Casey Ryan.


Molmen added that the construction of the Aurora Hospital could end up taking a substantial amount of money out of the community. For example, he said Altru currently receives about $7 million a year in Medicare reimbursement because it is a sole provider, meaning Altru serves at least 90 percent of the community's Medicare patients.

If Altru loses some of those patients to a new hospital, he argued the $7 million simply would leave the community. It wouldn't be divided between Altru and the new hospital.

"Why would our city government subsidize that happening?" he asked.

On the other end of the spectrum, Peterson said Aurora Hospital would bring economic development along with it. The proposed hospital would employ about 130 full-time workers in its first full year of operation. Businesses at Aurora Medical Park already employ 170 people. By the time the campus is fully developed, Peterson said as many as 500 people could be working there.

Peterson projects the average compensation for workers at the hospital to be somewhere around $58,000 annually, including wages and benefits. The figure does not include salaries for the hospital's physicians.

In addition, Peterson said he is looking to recruit physicians who are committed to the community.

"They are going to come here and they're going to stay. They are not going to leave in a year," he said.

The tax incentive would help ease the financial burden of getting the new hospital going. Peterson said the hospital needs to hire and train its staff before it can be licensed by the state. Once it can begin seeing patients, there still are regulatory issues that need to be addressed before the hospital can be fully reimbursed for the services it provides.

"That's why starting a hospital is so risky, and that's why the real estate tax abatement is so important for us," Peterson said.

Charitable care?

A major question surrounding privately owned hospitals is their commitment to charitable care. According to Dr. Robert Town, an assistant professor at the University of Minnesota and expert in health care competition issues, nonprofit community hospitals have an obligation to put some of their operating surplus toward charitable care.

Traditionally, he added, nonprofit hospitals provide more charitable care to patients than for-profit hospitals.

"There obviously is a little more attention paid to the bottom line because there are some investors that want some return," Town said of for-profit hospitals.

However, he added that fact shouldn't create a false image, painting for-profit hospitals as cold-hearted, money-making machines because charitable care isn't limited to only nonprofit hospitals.

Furthermore, he said commitment to the community is more than just providing charitable care. In the case of for-profit hospitals, commitment to the community could be gauged by job creation or increasing the tax base.

"How do you go on measuring somebody's commitment to the community?" he said.

Town also said there have been questions regarding nonprofit hospitals' commitment to charitable care at the national level. "Just because it is a nonprofit organization doesn't mean it's providing a lot of charity care," he added.

Unique situation

Even though there are plenty of examples of the pros and cons of health care competition around the country, Wade said it's hard to compare Grand Forks' situation to other communities.

Critics of private-owned facilities say they have a tendency to cherry-pick profitable services, while leaving the burden of providing money-losing services on community hospitals. Proponents of private ownership say it allows physicians to provide faster services through eliminating bureaucratic delays.

"It's really, really hard to generalize that stuff because every community is different," Wade said.

Even the recent construction of a new hospital in Fargo is completely different from Grand Forks' situation, say officials from MeritCare Health System and Dakota Clinic/Innovis Health.

According to Dr. Tim Mahoney, a Dakota Clinic physician and Fargo city commissioner, the community was used to having multiple hospitals in 2001 when construction on Innovis Health's 74-bed hospital was completed.

The hospital, which operates as a taxable nonprofit, was a joint venture between Blue Cross Blue Shield of Minnesota and Dakota Clinic. Last year, representatives from Dakota Clinic bought out BCBS in the venture.

While plans for Innovis unfolded in the 1990s, John Doherty, chief operating officer at MeritCare, said the health system didn't anticipate a major change in competition.

"We weren't overly concerned that it would change the competitive landscape dramatically," he said.


With the tax exemption issue still before the City Council, debate regarding the proposed Aurora Hospital and the intentions of those behind it will no doubt continue.

There does, however, seem to be a consensus. Wade said it is crucial for Altru to maintain its strength as a community hospital especially in an environment where one-third of the nation's hospitals are operating in the red. If Altru has to start cutting services five years down the road, he said Grand Forks would not benefit from the new hospital.

"Nothing should happen with this decision where anyone in the community is a loser," he added.

That's something Peterson agrees with as well. He said the new facility will bring new patients to Grand Forks, and result in growth for both Altru and Aurora.

Edison reports on business. Reach him at (701) 780-1107, (800) 477-6572, ext. 107; or jedison@gfherald.com .

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