Fairview Health issued a request Monday for local organizations to join in a partnership to preserve mental health, substance abuse and perhaps other treatment services at the money-losing St. Joseph's Hospital in St. Paul that is being eyed for closure.

Leaders of the hospital and clinic system said St. Joseph's is struggling to compete as a general hospital, with two larger competitors close by, but that the right partnership could transform it into an innovative provider of inpatient and outpatient mental health and substance abuse services.

"People are going to look at this and say, 'That was really transformative in this market,' " said James Hereford, Fairview's chief executive.

The alternative is partial or complete closure of St. Joseph's, perhaps within two years. Executives from Fairview and its academic partner, the University of Minnesota, met to address budget shortfalls late last year and proposed outright closure of St. Joseph's and the Bethesda long-term care hospital. Fairview scaled back plans for Bethesda, and closed half of the beds at the St. Paul hospital this winter.

Fairview has bet big on its new M Health Fairview clinical partnership with the university to grow its clinical revenue and patient volumes, but the health system lost $96 million in 2019 and expects losses again this year.

The S&P and Moody's bond rating services have both issued negative outlooks for Fairview — with the latter agency also cutting the bond rating that the health system uses to obtain financing for renovations and expansions. Analysts for both agencies said cuts to money-losing services are needed soon, although they also linked Fairview's losses to its increased financial commitments under the M Health Fairview deal to support research and faculty recruitment to the university's medical school.

"We know the status quo can't be maintained," Hereford said.

Hereford said he has been encouraged by initial discussions of potential partners, some of which would suffer negative economic or other consequences if St. Joseph's closed. The idea is drawing on successful partnerships in San Diego and Portland by health care providers to maintain or open mental health hospitals.

In the request for proposals, Fairview noted that it operates a disproportionate 42% of inpatient mental health beds in Minnesota. That share increased after its 2017 merger with HealthEast and its subsequent decision to expand mental health capacity at St. Joseph's.

The hospital has an average daily census of 220 patients, and operates 105 beds for mental health and substance abuse treatment. It has posted annual operating losses every year for the past decade.

The partnership proposal continues a long-running debate in the Twin Cities about the need for more inpatient mental health beds vs. the need for crisis, prevention and outpatient services that keep people from needing those beds. Hereford said an ideal solution would likely create a mix of both at St. Joseph's.

"We have a broken system for caring for mental health," Hereford said. "What the actual inpatient need is, I don't think anybody can or should speculate, because we don't know what a highly effective ambulatory system's impact would be."

Fairview wants partners to respond with interest by April 1, and to select a partnership model by June 1.