The city hospital in Willmar, Minn., and a large group of physicians in west-central and southwest Minnesota announced plans Thursday for a new nonprofit health system affiliated with the St. Cloud-based CentraCare network of hospitals and clinics.
The deal is not a merger or acquisition, the parties say, but is part of a trend where hospitals and doctors in greater Minnesota are creating links to one of four regional systems as they prepare for new payment arrangements with the government and private health insurers.
With the agreement announced Thursday, CentraCare would join Rice Memorial Hospital and a physicians group called ACMC Health to create a new nonprofit organization. Patients won't notice near-term changes, but the agreement puts the hospital and clinic in a better position for future health plan contracts that feature incentives for more efficient care and preventive services, said Dr. Cindy Firkins Smith, president and chief executive of ACMC Health.
"For us to be more formally aligned, at the local level, we believe we're going to be best positioned to adapt to those changes in the future," said Mike Schramm, chief executive of Rice Memorial Hospital.
For CentraCare, the agreement extends the reach of a health system that already includes six hospitals and nearly a dozen clinics. Rice Memorial is one of only a half-dozen Minnesota hospitals with annual revenue of roughly $100 million or more that are still independent of the other systems, said Allan Baumgarten, an independent health care analyst in St. Louis Park
"For the hospital and the doctors, it is about access to capital and health IT and specialty centers," Baumgarten wrote in an e-mail. "I think that in this case the focus [for CentraCare] was on the medical group more than Rice Memorial."
Firkins Smith said ACMC is a multi-specialty clinic with 110 physicians in communities ranging from Willmar and Marshall to Redwood Falls and Litchfield.
Rice Memorial Hospital board members and physicians at ACMC Health voted Wednesday night to agree to a letter of intent for creating the partnership. A hospital spokesman said financial details and the structure of the system are still being negotiated.
A final agreement is expected later this year for implementation in 2018. CentraCare would have a "minority influence" on the new nonprofit's board of directors, said Firkins Smith of ACMC Health.
Whether through outright mergers or looser affiliation agreements, a growing number of hospitals and clinics in greater Minnesota have formed links with regional health care systems.
In addition to CentraCare in the middle of the state, the Rochester-based Mayo Clinic has expanded in the south, and Duluth-based Essentia Health has grown in the north. Hospitals and doctors in western Minnesota have merged or linked with South Dakota-based Sanford Health.
Consolidation among doctors and hospitals in rural and urban areas has raised concerns about higher health care costs, since the provider groups have more market power when negotiating payments from health plans. But Firkins Smith said: "Our goal is not to leverage for higher contracts, or better pay. ... Our goal is to reduce costs across the board."
With closer integration, the hospital and physician practice, for example, can develop electronic health records that are more compatible, thereby helping avoid unnecessary care.
"Right now, for instance, a patient can have a lab test done at ACMC, and they might show up at Rice a day later and have exactly the same lab test done that maybe didn't need to be done," Firkins Smith said. "We want to make sure that patients have exactly the right care, at the right place, at the right time, for the right cost."
CentraCare is one of the state's 10 largest health systems in terms of annual revenue. In fiscal-year 2015, Centra Care posted net income of $60.5 million on $1.1 billion of revenue. Rice Memorial in fiscal 2015 saw net income of nearly $3.5 million on $99 million of revenue.
Last year, the Federal Trade Commission (FTC) cleared CentraCare's acquisition of a large physician practice in St. Cloud despite concerns about the deal's impact on competition. At the time, FTC said CentraCare employed about 270 doctors, while the acquired practice employed another 40 physicians.