Health systems are betting on primary care

HealthEast is doubling down on primary care.

The St. Paul-based system of hospitals and clinics is betting that a bigger investment at the front end of health care will help generate long-term growth while preparing for future health insurance contracts.

Insurers and the government are shifting more financial risk to doctors and hospitals, and primary care is seen as one of the keys for health systems to manage costs.

"If you believe that the world is moving toward rewarding value, and rewarding delivery systems that are effective in managing the health of a population, then that requires significant primary care capabilities," said Allan Baumgarten, an independent health care analyst in St. Louis Park. "Everybody is doing some measure of that."

Primary care providers can guide patients to efficient care, like which problems can be handled at a clinic rather than through a costlier trip to the ER. They also serve as the entry point to all the services offered within a health system, including specialty care that generates more revenue.

The wagers on primary care don't come cheap, and can be seen across the Twin Cities.

The Minneapolis-based Allina Health System currently is developing clinics in Buffalo, Isanti and River Falls, Wis., that will include new and existing primary care providers, plus better integration of mental health and wellness services.

Last year, Robbinsdale-based North Memorial Health Care opened new primary care clinics in Eden Prairie and downtown Minneapolis, plus retail clinics at grocery stores in New Hope and Oakdale.

"We are focused on access — not just clinic growth, but better access to clinic care," Lesa Bader, a North Memorial spokeswoman, said via e-mail. "This is in line with the national health care trends to shift to population health, convenience and wellness vs. hospital-based care."

HealthEast ranks eighth in terms of revenue among the 10 largest hospital operators in Minnesota, according to a Star Tribune analysis, with $974 million in revenue for fiscal 2015.

The system employs about 7,500 people, and includes 14 primary care clinics, three general hospitals, one long-term care hospital and a surgery center.

HealthEast plans to spend approximately $16 million in the current fiscal year to boost primary care through several strategies, such as hiring more doctors, nurse practitioners and physician assistants.

The expenditures were a factor cited by Fitch Ratings in a May report when the agency downgraded the health system's debt because of concerns about missed profit targets.

The five-year plan for growing primary care is a "key strategic initiative," Fitch analysts wrote. HealthEast currently has 373 employed physicians on its medical staff, they said, and expects to add 60 health care providers including 40 physicians this fiscal year, which ends in August.

"Through April, the system has added seven primary care and eight new specialty physicians," Fitch analysts wrote. "It is a significant investment in the short term with HealthEast anticipating $16.2 million in expenses for 2016 for new provider compensation and other related expenses as the system continues to prepare for population health."

The downgrade means roughly $500,000 per year in additional interest expense for HealthEast, Davenport said, but it hasn't dampened enthusiasm for the primary care push. "Any investment in primary care is a long-term investment — it doesn't necessarily return itself in a short period of time," he said. "It's not a short-term game."

It's a game that health systems across the country are playing, said Ron Calhoun, the managing director for health care delivery system transformation at the consulting firm Aon PLC.

The structure of these contracts can vary significantly, he said. One example is a government program that penalizes hospitals when discharged patients quickly return with problems that could have been prevented.

These "readmissions" have been targeted now for several years by Medicare, and give hospitals clear incentives to make sure patients are connected with primary care providers that can help them stay out of medical centers.

The move to managing population health is part of a shift away from insurer and government contracts that pay doctors and hospitals for every service that they provide. The new contracts want to provide payments based on the value of the care provided — a combination of both cost and quality.

The federal agency that runs the Medicare program, in particular, has a number of programs designed to encourage this shift from "fee-for-service" payment to "fee-for-value." But if the shift gives health systems incentives to get bigger, there's a tension between the trend and concerns about competition in the marketplace.

"One could argue that a system that expands both on the post-acute side on the back-end, and on the primary side on the front end, is necessary to be able to, in a comprehensive way, manage a population," Calhoun said. "But that also runs afoul to some antitrust issues, so it's this razor's edge that we have to walk."