The Minnesota Department of Health has announced its opposition to a planned for-profit rehabilitation hospital in Roseville, damaging chances that the facility will gain legislative approval this year.

The finding by state health economists was notable, given that hospital overcrowding across the state has been blamed in part on the lack of places to discharge patients after hospitalizations. But the state's health commissioner, Dr. Brooke Cunningham, said Minnesota should be wary of allowing more for-profit providers such as Nobis Rehabilitation, which has opened 13 rehab hospitals across the U.S. since 2020.

"The proposed hospital would represent a further move toward profit-driven, private equity financed, freestanding specialty hospital ownership, away from the existing largely not-for-profit community hospital model," Cunningham wrote in a letter this week to lawmakers.

The review was publicly released Thursday.

Nobis last year submitted notice of its plans to build the 60-bed Minneapolis Rehabilitation Hospital in Roseville. The Texas company argued that Minnesota had a shortage of inpatient rehab facilities compared with other states, and that the operation would complement rather than compete with existing hospitals.

Minnesota prohibits construction of new hospitals, or expansion of existing hospitals beyond their licensed capacities, unless they receive permission from the Legislature.

A negative public interest review by the health department is a setback but doesn't prevent lawmakers from voting for the project. PrairieCare ended up building a pediatric psychiatric hospital in the west metro despite a negative health department review for the company's original plans for an adult and child facility in the east metro.

Minnesota has relied on nursing homes to take patients when they are ready to leave hospitals but still need rehab and recovery before they can go home. Ten general hospitals in the state operate inpatient rehab units, but they remain scarce. Sanford Bemidji is closing its unit this spring, citing a greater need for more beds for hospital patients.

The health department raised concerns that Nobis would worsen the worker shortage in the Twin Cities by hiring away caregivers from other facilities rather than bringing in their own.

Nobis also proposed a 7.6 patient-to-nurse ratio that "gave us tremendous pause," said Stefan Gildemeister, state health economist. The ratio at six rehab units within Twin Cities hospitals ranges from 2.6 to 4.2.

Nobis didn't immediately reply to a request for comment Thursday.

Most rehab units in Minnesota are half or two-thirds full, despite overcrowding in general hospitals that is causing backlogs in emergency departments. Gildemeister attributed that situation to Medicare rules, which compensate rehab facilities only for patients capable of participating in substantial daily rehab exercises.

Most patients in existing rehab facilities are recovering from stroke, neurological disorders or traumatic brain injuries. Minneapolis-based Allina Health had submitted a similar plan to build a rehab hospital, but the nonprofit provider delayed it because it wasn't ready to seek legislative approval this year.

Nobis proposed an "exceptional" facility with state-of-the-art rehab equipment, but Gildemeister said there were concerns about whether the for-profit provider was committed to serving low-income and uninsured patients.

Minnesota hasn't always opposed for-profit solutions. The health department in 2022 approved the conversion of the Bethesda campus in St. Paul into a psychiatric hospital operated by Fairview Health Services along with a Tennessee-based for-profit, Acadia Healthcare. The 144-bed hospital is scheduled to open next year.

In its most recent review, the health department contrasted the need for rehab beds, given that existing units have vacancies, with the urgent need for mental health care. More than 95% of the state's inpatient mental health beds are usually occupied.