North Memorial adjusts to the new health care landscape

In 2012 and 2013, the typical hospital system in the Twin Cities earned about 3 cents of operating income per dollar of revenue.

Not so at Robbinsdale-based North Memorial Health Care, which roughly broke even both years.

Improving the financial performance is just one of the challenges for Dr. J. Kevin Croston, a longtime North Memorial physician who is scheduled to become CEO in April. The new chief executive must continue the work of retiring CEO Loren Taylor, as North Memorial adjusts to a world where everyone wants to pay less for hospital care.

Q: What do you see as the key challenges for North Memorial?

A: With the Affordable Care Act, it's completely flipped the financial dynamic on its head.

And so hospital-driven decisionmaking — all health systems are having to learn how to treat patients in the best care setting. Historically, [it] was always assumed that that was the hospital. But as it turns out, that's just the most expensive care setting, and more care needs to be done in an ambulatory care setting or in the outpatient world — because it's safer, faster, more efficient and more patient-friendly.

So, North Memorial's challenges are no different from anybody else's. Our hospitals have been our financial drivers historically, and still are, but the incentives for that kind of decisionmaking and that kind of care are going away.

A: Patients want their care closer to home. They don't want to have to go to the hospital to receive it. … We've invested in three new clinic sites in the last two years, and we've got five coming online potentially next year. One is opening up later this year, for the fourth [in 2014]. So, we're really going after the patient access, we need to be out there in the community so people can see North Memorial in a different light.

I think if you ask people in town what they think about when they hear "North Memorial," they think about the trauma program and think about the urgent/emergent reputation of the hospital. Now, they're going to see that North Memorial is a patient-centered, friendly place to receive health care in the community.

Q: North Memorial has been relatively weak from a financial perspective. Why is that, and what do you do to change that?

A: We are the smallest health system in the metropolitan area. …

North Memorial didn't do a very good job of managing its operating expenses in years past. And so, when the economy turned downward in 2008, we went from being the best capitalized health system for its size to in trouble, and we weren't able to overnight create those operating margins that the others had delivered for a while because they had more hospitals. …

Q: North Memorial has a 25 percent ownership stake in Golden Valley-based PreferredOne, which saw an enrollment spike in 2014 before pulling out of the MNsure exchange next year. Has ownership in PreferredOne been a good deal for North Memorial?

A: Having a close relationship with a payer has afforded us a different conversation than we would have had without it. So, in some ways PreferredOne has made us better at being a better provider for all the payers. …

I was glad to see them doing well, because there's a physician ownership piece to PreferredOne. And as a physician, I own a share of it — and I was glad to see the company, it looked like they were being aggressive. But there are financial realities to every decision you make. … I think they pulled back out of the market so they could reset.

Q: The Affordable Care Act is expanding health insurance coverage. Has that meant fewer uninsured patients at North Memorial?

A: I'm not sure that we know that answer yet. But when we've looked at it, at the million-foot level, it has not appeared to change that number substantially, which has been a bit of a surprise. We anticipated that the number of uninsured would go down, and I think we still anticipate that it's continuing to go down in the coming years. But in its first year — at least, year to date — I don't think we're seeing a significant impact.

A: I would say that North Memorial has always been independent, and going forward it probably is going to have to be interdependent, which means we'll have to have relationships with other health systems that'll benefit both of us. … There are some other opportunities to partner out there short of outright merger or consolidation.

Christopher Snowbeck • 612-673-4744