Minnesota regulators are weighing whether to allow the state's first stand-alone, for-profit inpatient rehabilitation facility as a solution to hospital overcrowding.

Texas-based Nobis Rehabilitation submitted plans Aug. 1 to build a 60-bed rehab hospital in Roseville, arguing that Minnesota's hospitals and nursing homes have reduced their step-down beds just as demand has increased. The company estimated that Minnesota is short 130 rehab beds and will need more as its population ages.

"Based on our extensive experience with inpatient rehabilitation, we believe there will be significant value in approving the … hospital," said Chester Crouch, Nobis' president, in a letter to the Minnesota Department of Health.

The proposal creates a dilemma for state health economists who must advise the Legislature on whether to permit the project by exempting it from Minnesota's moratorium on hospital construction. The state historically relied on nonprofit providers to build a lower-cost health care system, but it might need for-profit companies to solve a worsening problem.

Minnesota learned the hard way over the past two winters that its hospitals are vulnerable to overcrowding. Understaffed nursing homes left hospitals unable to discharge recovering patients, which in turn created backlogs in emergency care that lasted hours or even days.

Nobis could ease the pressure by giving hospitals another place to send patients who no longer need inpatient care but remain too frail to go home. Six Twin Cities hospitals operate their own step-down units, but others have closed them in recent years.

State Sen. Jim Abeler, R-Anoka, said Minnesota needs new ideas and that he was encouraged by Nobis' pledge to provide discounted or free care to low-income patients: "Some people might be worried about a for-profit compared to a nonprofit, but at this point I think its an all-hands-on-deck problem." he said.

Many patients go to nursing homes for short-term rehab after surgeries or hospitalizations for severe injuries or illnesses. Minnesota also has two long-term acute care hospitals — Regency in Golden Valley and St. Joseph's in St. Paul — that provide extended rehab.

Inpatient rehabilitation facilities are federally designated to operate between those two levels, serving patients who are still recovering but strong enough for at least three hours of therapy per day.

Free-standing rehab hospitals have popped up across the country, despite concerns about their efficiency. A Medicare advisory report last year found that rehab hospitals were paid well above the cost of their care, and that for-profit facilities were less likely to take stroke patients and others with complex and high-cost needs.

Nobis has opened 13 rehab hospitals in the U.S. in the last two years, mostly in the South, and has eight others in development.

The Roseville facility would be called Minneapolis Rehabilitation Hospital, according to Nobis' filing, and would be built large enough to achieve cost efficiencies and support specialized rehab programs in areas such stroke and spinal cord injury.

Assuming legislative support next spring, Nobis estimated that the hospital would admit patients by October 2025. The company pledged to work with local colleges to train therapists, but also to rely on its national travel pool so it wouldn't siphon too many workers from Minnesota hospitals and clinics.

State regulators will likely balance the Nobis proposal against other efforts to address the shortage of post-hospital care, including a possible local competitor.

Minneapolis-based Allina Health said in a statement Tuesday that it just notified the state of plans to open its own 100-bed rehab hospital in 2026.

Gov. Tim Walz and senior lawmakers said on Tuesday that they are committed to supporting nursing homes so they can add staff and reopen shuttered beds — beyond $173 million in direct funding that was approved this year to keep their doors open.

"The goal was to … raise that floor back up to a point where we can keep folks operating but then come back with the hard discussions that need to happen," he said during a visit to a Coon Rapids nursing home.

For-profit Select Medical Corp. also is proposing to shift 26 long-term acute care beds from Regency in Golden Valley to a new location in St. Paul that could better serve east metro patients. The region lost rehab capacity in 2020 when Fairview Health shut down the Bethesda long-term acute care hospital, though 24 of its beds remain in operation at the former St. Joseph's Hospital in St. Paul.