Powered by HealthPartners, Regions Hospital becoming the east metro’s biggest [Pioneer Press, St. Paul, Minn.]

June 09--The market share of hospitals in the Twin Cities doesn't change by huge amounts from year to year.

One reason is that physicians strongly influence a patient's choice in medical centers, and patients tend to stick with doctors they like.

Doctors, meanwhile, don't routinely make changes in their hospital affiliations, especially since a growing number of physicians are employees of large hospital systems.

Yet within this relatively static world, the St. Paul hospital market has witnessed a significant shift over the past five years.

By the third quarter of last year, Regions Hospital had edged out nearby United Hospital in terms of market share in the east metro area, according to numbers from the Minnesota Hospital Association. Regions says that its numbers suggest the medical center remained St. Paul's largest hospital at the end of 2011, too.

David Kanihan, a spokesman for United Hospital'sMinneapolis-based parent company Allina, downplayed the significance of the shift, writing in an email: "We are not inclined to read too much into market share fluctuations that are this small." He added that since the third quarter of 2011: "We have recouped some market share back from Regions."

Officials with the St. Paul-based HealthEast system noted that their three acute care hospitals -- St. John's in Maplewood, St. Joseph's in St. Paul and Woodwinds Health Campus in Woodbury -- collectively had a larger slice of the east metro market last year than that held by Regions.

Regions is run by Bloomington-based HealthPartners, which is unique in the area as being both a large insurer and provider of health care. This dual role has been a factor in driving business at Regions.

HEALTH PARTNERS' ROLE

The improved market-share trends stressed by Regions dovetail with better financial performance for the hospital as well as more profit for HealthPartners.

In 2008, Regions posted operating income of about $5 million on $494 million in

revenue. That worked out to an operating profit of about 1 cent per dollar of revenue.

Last year, that operating profit margin grew to about 5 percent as the hospital saw $30 million in operating income on revenue of $604 million.

Excluding numbers from Regions and its other hospitals, HealthPartners last year saw operating income surge by 61 percent. The combined health insurance and medical group business posted an operating profit of $143 million on revenue of just over $3 billion.

The financial picture helps explain why Regions is constructing a $36 million, eight-story mental health building without taking on debt, said Brock Nelson, the hospital's chief executive officer.

"We're in a position to make this investment," Nelson said.

The facility, on the north edge of the Regions campus along University Avenue, is scheduled to open in December.

Regions has grown as HealthPartners has expanded its network of clinics in the metropolitan area and created a group of hospitals in the St. Croix River Valley along the Wisconsin border. Those sites can effectively funnel patients to Regions for specialized care that the system doesn't provide at those sites.

"Regions is enjoying the moves they've made in the last 10 years to add additional spokes to the hub," said Allan Baumgarten, an independent analyst in St. Louis Park who publishes reports on hospital finances.

HealthPartners' insurance business also has grown, with membership in medical plans

increasing by 16 percent between 2008 and 2011. One way or another, health plan growth means that more people wind up getting care in the HealthPartners system of clinics and hospitals.

The insurer doesn't force health plan members to receive care from its own network of nearly 700 employee physicians. But it makes the choice attractive with amenities such as unified electronic medical records and dental care in some clinics, said Christopher Schneeman with Seven Hills Benefit Partners, a health insurance brokerage in St. Paul.

Plus, some health insurance products sold by HealthPartners give financial incentives for members to use clinics in a preferred tier of providers who meet certain standards for cost and quality.

HealthPartners' clinics are "tier one" in those HealthPartners insurance products, he said. "When HealthPartners insurance grows, there's a natural tendency to grow in those HealthPartners clinics."

FINANICAL-PATIENT BALANCE

Physicians in St. Paul certainly have noted the recent growth at Regions, said Dr. Lyle Swenson, president of the Minnesota Medical Association.

"They have a much bigger referral base now with how they've grown all their additional clinics and hospitals," said Swenson, an independent cardiologist who treats patients at HealthEast hospitals.

Swenson was on the medical staff at the former St. Paul-Ramsey Medical Center, which was renamed Regions after HealthPartners assumed control of the county hospital in 1994. HealthPartners has done a good job with the business side of hospital operations, Swenson said.

But with any big system -- not just HealthPartners -- physicians worry that patient care could suffer in ways that are hard to detect, Swenson said.

"The main focus of a big organization is economic survival and viability," he said. "That's not the stated goal, of course. ... But sometimes there's a very subtle pressure on the physicians in the organization to try and achieve that goal and it can conflict with the main priority that we have, which is to do what's best for the patient."

Regions Hospital employed nearly 4,400 people at the end of last year. It is one of the state's 10 largest hospitals in terms of available beds and saw about 25,000 admissions last year.

HealthPartners' insurance company and medical group, meanwhile, employed about 5,800 people.

As a trauma center that can treat the most serious cases, the emergency room at Regions is the largest in the city of St. Paul with more than 78,000 visits in 2011. The hospital opened a newly expanded and renovated emergency room in 2009, and ER volume has grown 10 percent since.

The busy emergency room is one factor in the hospital's recent growth, said Nelson, the hospital CEO. More broadly, the hospital has seen a slight increase in admissions in recent years when many hospitals are seeing declines.

FEEDER SYSTEM

Regions has benefited, Nelson said, from a network of clinics at HealthPartners that currently includes 24 locations, including openings last year in Eagan and Cottage Grove. Later this year, the system's medical group expects to open a clinic in St. Paul'sHighland Park neighborhood.

"The primary care clinics on the east side were not always using us," Nelson said. "We've changed and by upgrading our level of service ... I believe all HealthPartners clinics are using Regions Hospital."

"It's very difficult for any primary care physician to refer their patients to a hospital that they feel is not as good as it gets," he added.

Regions also has benefited from HealthPartners' network of hospitals in the St. Croix River Valley, Nelson said.

In 2006, the system paid $11.5 million for Holy Family Hospital in New Richmond, Wis., which it renamed Westfields Hospital. Most of the money came in the form of a cash payment, but the sum included a $4 million loan from Regions.

In 2008, Hudson Hospital announced plans to merge with HealthPartners. Last year, on the Minnesota side, the health system took control of Lakeview Hospital in Stillwater and a related physician organization called Stillwater Medical Group.

HealthPartners has a minority interest in two other hospitals in western Wisconsin. A member of the Western Wisconsin Medical Association sat on the HealthPartners board during 2010 and 2011.

"We are involved with western Wisconsin," Nelson said. Of the loan to the New Richmond hospital, he said: "It is strategic. We serve patients from there so it's very important that we're connected and mutually support each other."

Working with the HealthPartners Medical Group, Regions has recruited specialists in recent years so the hospital can offer more advanced services. The medical center, for example, recently started offering a treatment for Parkinson's patients called deep-brain stimulation, in which a neurosurgeon implants a pacemaker-style device.

And since 2002, the HealthPartners Medical Group has added 10 heart specialists, eight orthopedic specialists and four specialists in neurology or neurosurgery.

Offering advanced services is one way Regions hopes to keep growing, Nelson said. They also should help with an expected shortfall in late 2013, Nelson said, when Regions expects to lose about $20 million in enhanced payments it had been receiving from the federal government as part of economic stimulus legislation.

Some of the federal money compensates Regions for treating low-income patients, Nelson said. In addition, Regions has received $1.74 million annually for the past three years from Ramsey County to help defray care costs connected to residents. But new services and government support aren't the keys to growth at Regions, Nelson said.

"The bigger opportunity is to have people choose you because you're the best value," he said. Noting efforts at Regions to cut inappropriate use of the emergency room as well as unnecessary hospital readmissions, Nelson said: "We will benefit from that because we will be the place that people want to go to for the best care at the lowest price."

Christopher Snowbeck can be reached at 651-228-5479. Follow him at twitter.com/chrissnowbeck.

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