Other providers eye Albert Lea hospital

ALBERT LEA — Questions abound as a financial health care expert prepares to conduct a feasibility study of Mayo Clinic's Albert Lea hospital, but it appears some health care providers are circling the area, intrigued by the idea of adding the city to their coverage area.

Albert Lea City Manager Chad Adams said at Monday's city council meeting that at least three non-Mayo organizations have expressed an interest in providing health care services for the Albert Lea area since informational discussions began in June. Save Our Hospital representative Craig Ludtke, chairman of the group's second provider subcommittee, previously told the Post Bulletin at least three non-Mayo organizations he's met with are "very interested" in either acquiring or operating the campus.

Adams and Ludtke both declined to identify the interested parties by name, but it adds a new layer of intrigue to what's become a contentious public dialogue between a community and its health care provider.

The specter of a new provider comes as Mayo begins a consolidation process at its merged Albert Lea and Austin campus. Albert Lea's ICU officially will be moved to Austin by Monday, while inpatient surgeries and baby delivery are slated to move in January 2018 and late 2019, respectively.

Mayo frequently has renewed its commitment to the hospital, while rejecting requests to sell the campus since its June 12 announcement of consolidation. Spokeswoman Ginger Plumbo confirmed that stance again on Wednesday.

"Our goal has always been to keep the hospital in Albert Lea strong and viable for current and future generations and to deliver safe, high-quality care to all our patients," Plumbo said via email.

However, the Albert Lea City Council, Freeborn County Board and Save Our Hospital group all have pledged at least $35,000 to pay for a feasibility study of the Albert Lea hospital. Adams said an expert was selected Thursday and contract details are currently being finalized.

Ludtke, an Albert Lea business owner with 40 years of experience in risk management, says he's spent months pouring over tax documents from more than 40 similarly sized Midwest hospitals to Albert Lea. Based on those comparisons and feedback from other regional providers, he's optimistic about what the feasibility study will reveal.

"Almost to a person, the other providers we've talked to can't understand how we're in this predicament," Ludtke said. "Rural populations under 10,000 are places that are being challenged today. We're a city of 18,000 serving an area of 55,000.

"Most of these people tell us, categorically, they would be making money in this environment."

If the study confirms Ludtke's preliminary analysis, Minnesota Attorney General Lori Swanson has pledged her assistance "to research and provide information about legally permissible financing options" in a Sept. 11 letter to city and county officials.

While they await the findings, Jerry Collins, chairman of Save Our Hospital's political subcommittee, said many community members already are "done" with Mayo.

"There's a large percentage of people in Albert Lea and Freeborn County, plus northern (Iowa), who are done with Mayo Clinic," Collins said. "We love and adore Rochester Mayo, The Mayo Clinic, and we're proud to have that in our backyard. However, Mayo Clinic does not know … how to deliver high-quality rural health care."

"We've exhausted our options in working with them. Come Oct. 1, I think you'll see us move forward with an alternate provider."

Mayo's losses match national trend

Mayo officials have claimed losses accelerated to $8 million in 2016 at the merged campuses of Austin and Albert Lea, which they say also is facing critical staffing shortages and patient declines of 50 percent during the last decade. Additionally, Mayo Clinic Health System lost money last year for the first time in its 25-year existence, according to Mayo Clinic Vice President and MCHS leader Bobbie Gostout.

Those losses fit the financial trend of rural hospitals across the country, a third of which have been deemed "vulnerable" to closure by the National Rural Health Association.

Mayo declined to answer specific financial questions about Albert Lea's recent tax returns or to provide financial data that would add context to Gostout's statement about MCHS losses. Mayo also received a six-month filing extension from the IRS for its 2016 taxes, which is routine; its 990 form is now due by Nov. 15.

"Several different versions of what the audit might entail have been circulated, but it is unclear at this point who is leading this effort and under what authority a private citizens group may be spending taxpayers dollars," Plumbo said via email. "We have not been contacted by a private auditor and cannot speculate at this point what might be requested or what Mayo's response would be."

Mayo conducted its own 18-month internal study before announcing consolidation plans on June 12. Details haven't been made public.

Debating profits and losses

Ludtke's three biggest points of "consternation" from Mayo's public tax documents for Albert Lea and Austin are significant increases in the pension plan, office expenses and what are categorized as medical supplies and other expenses.

Those three line items went up by about $32 million from 2014 to 2015, headlined by a 107 percent increase in pension costs.

On the flip side, Mayo's revenue and net profits appear to be solid since consolidating its Albert Lea and Austin campuses four years ago. The merged campuses brought in $278.3 million in 2013, and that had increased to $313.5 million by 2015 — an increase of nearly 13 percent. The net profits during that time are nearly $20 million, according to Mayo's tax documents.

However, Mayo officials argue its operations actually are losing money because donations and investment income shouldn't be relied upon to fund operations. That has prompted criticism from some Freeborn County residents.

Independent health care analyst Allan Baumgarten, who is based in Minneapolis, walked a fine line in evaluating the merits of that financial argument.

"It's a reasonable position (for Mayo) to take, but I think it's also reasonable to say you should consider the entire picture, which includes these other sources of income," Baumgarten said. "I guess I'm saying in sort of an unsatisfying way that they're both right.

"How you describe your financial position often depends on what industry you're in, and whether you're a not-for-profit or a for-profit organization."

The entire Mayo system, which is a not-for-profit entity, has posted operating margins of at least 4.3 percent since 2009, resulting in annual profits of between $400 million and $800 million.

Those numbers are well above the 3.4 percent median operating margin for all not-for-profit hospitals in 2015, according to Middy's Investors Service.

However, Ira Moscovice — director of the Rural Health Research Center and a distinguished professor in the division of health policy and management at the University of Minnesota — preaches caution before running too far with those numbers in Albert Lea. He says rural hospitals fall well below Moody's numbers.

"Many rural hospitals would be quite happy to have a 3 to 5 percent operating margin — because many are negative," Moscovice said. "It's a problem, quite frankly. It's one reason why rural hospitals join a system like Mayo's."