New clinic draws crowd -- and competition

New clinic at Northfield HospitalFaithful blogger and busy man Ray Cox has a complete rundown of Saturday's dedication of the new clinic at Northfield Hospital. You can check out the details on Ray's blog, and read about the clinic in this recent story.

I recently wrote a story on hospital and clinic competition in the south metro market, including what's going with Northfield Hospital. The story appeared in the March issue of the Real Estate Journal's Minnesota edition.

If you don't have a subscription, here's the story:

For years, Twin Cities health care systems have focused a lot of their attention on the fast-growing areas of Woodbury, Maple Grove and the western suburbs. But there's another battle shaping up south of the Minnesota River.

That's where Metro-area giants Allina Health System and Fairview Health Services are leading the charge from the north, and also where Rochester's Mayo Clinic monolith is testing a northward expansion of its southern Minnesota stronghold.

This means that puts Dakota County is at the center of a push to retain existing customers, convert new suburbanites looking for health care and deliver the babies who will be the next generation of loyal patients.

Burnsville is ground zero for medical development. City officials there estimate that there are nearly 190 health care providers, most of them clustered near, and in some cases anchored by, the now 150-bed Fairview Ridges Hospital.

But competition also is fueling a construction boom of new facilities in Lakeville, Farmington and beyond the county line as far south as Owatonna. There are dozens of players in many kinds of facilities, but three stand out for their sheer size and strength.

Building the brands

While the fine points of the strategies vary, the driving principle is the same for all three.

"Proximity matters," says Thomas Holets, president of Allina Medical Clinics. "It's still a very high-touch business."

And with early revenue figures from 2006 indicating a decline, the push is on not just to touch more patients, but to hold on for dear life. Unlike retailers who can replicate identical stores in areas as rooftops hit a certain number, healthcare providers operate more like the hub and spoke systems of airlines.

Holets points out that suburban and rural patients generally don't have a relationship with any of the major downtown Metro hub hospitals, which they might need only rarely for the most critical—and expensive—medical services. Thus, the key to success is system integration, or building brand loyalty to the health system by providing the vast majority of care where patients live.

That's why Allina is in 60 communities in Minnesota, all linked by a new, comprehensive electronic records system with its laboratories, imaging centers and its flagship, Abbott-Northwestern Hospital.

The tricky part of all this system integration lies in providing the mammograms, lab work, minor surgery and other services in that gap between the primary care doctor's office and the intensive care units of a major medical facility. The high cost of providing those services in areas where growth is more potential than real is creating some tough competition and some unusual alliances.

The cleanest system integration belongs to Fairview. Fairview Ridges Hospital dominates the southern healthcare market just as its six-story campus dominates the strategic triangle created by the County Road 42 and the Interstate 35W/35E split.

Brian Knapp, vice president of operations at Ridges, has been there since before the hospital opened in 1984, and is wrapping up his fourth round of construction. The latest, a $30 million addition and renovation launched in 2005, has upped its bed count to 150, added four operating rooms to make a total of 12 and now is renovating areas to keep up with changes in services. It also created a sixth-floor shell to position the facility for its next addition.

Ambulances usually have a policy of transporting to the nearest hospital, and Ridges benefits from its pivotal position on the area's highway grid. Most of the rest of those admissions come from, and return to, Allina's clinics.

Hospital creates hub, keeps adding spokes

"We assume we can provide about 88 percent of patient care here," Knapp says of Ridges Hospital. Neurosurgery, burn treatment and high-level trauma care will remain downtown, but Knapp says he anticipates Burnsville will continue to add services, such as some of the cardiology services now centered at Fairview Southdale Hospital in Edina. And of course, the hospital creates new patients all the time, delivering 3,600 babies per year.

To help build that patient base and support new services, Knapp works closely with Fairview's main Riverside campus, but he also works closely with Sally Wahman, vice president of ambulatory services, who coordinates what is now called the Minnesota Valley Fairview Clinics. The Minnesota Valley system includes clinics in Burnsville, Apple Valley, Prior Lake, Lakeville and a clinic with urgent care services in Eagan. A clinic in Farmington is planned for late this year.

Fairview owns its hospital but keeps its clinic focus on services by leasing office space. For example, it is working with developer Elder Doyle to create and lease larger space in Lakeville in a building that also houses an independent optometrist and a psychologist.

"They're complementary, not competitive," Wahman says.

Knapp says the issue of proximity is part reality and part emotional closeness for newcomers to the area.

"I think the initial affinity will depend on where they moved from," he says. "If they moved from St. Paul out here, their affinity might be to St. Paul."

Mayo moves north

The newest player in Dakota County is hoping to change some of those traditional affinities.

Mayo Clinic and its Mayo Health System have 30,000 employees, a medical school and world-class research and treatment facilities in Rochester. But rather than focus on buildings, Mayo has partnered to provide physicians for clinics and other facilities throughout a broad area, and now draws patients from Wisconsin, Iowa and a corridor along the southeastern quadrant of Minnesota.

Still, Mayo Health System Administrator Michael Seifert knows stretching out to the north won't be easy.

"No, we're not looking at coming in and taking over the market," Seifert says. "We really are looking at that corridor running through Lakeville and Farmington as an underserved area from a healthcare perspective, especially with the high growth in the last decade.

"Right now I think the reality is that people in that area look north (to the Twin Cities metro) for health services, and that's fine, but we do want to offer them an option."

This time, David and Goliath are on the same side of the battle. David in this case is Northfield Hospital president Ken Bank, who led the small, old city-owned facility in a new direction in 2005, building a $35 million campus on the northwest edge of town. The idea was to position it along the eventual extension of Cedar Avenue.

And by grabbing a corner of Dakota County, it could tap into the benefits of an urban hospital designation. But the move put the hospital in a location fairly remote from most of the city, and with Cedar Avenue's growth corridor still miles away, the hospital needed another way to grow its patient base.

So last year, Bank made another leap, spending $15 million more to build clinics in Lonsdale, Lakeville, Farmington and next to the Northfield hospital, and hiring Mayo to staff them.

"To Mayo, the advantage is we're providing the capital to see how they're received in the metro market," Bank says. "The Mayo connection gives us immediate credibility with patients."

The hospital has average annual revenues of about $55 million, which generated about $3 million in excess of expenses before all the construction started. Now the hospital is breaking even. Bank says the board knew expansion would require investment.

Competition picks up

Northfield Hospital's move to add clinics puts it in direct competition with Allina, which until now had the only clinic in town. Its doctors worked through the hospital and Allina provided imaging and other services there. Allina is now pulling most of its services out of the hospital and expanding its clinic on Highway 3, the main north-south corridor in the area. Allina has the client base and deep enough pockets to cover the clinic expansion and weather the competition.

Allina's Holets says the problem was that his company wanted to keep patients inside its system, which worked when the city hospital was old and limited in capacity.

"We tried to develop a collaborative relationship with the hospital," he says. "It doesn't make any sense to duplicate services. You have to have volume to do ambulatory services. We tried but couldn't pull it off."

When the new Northfield Hospital opened, there was pressure to keep patients in Northfield—pressure that pushed out Allina and its imaging services. The big question now is whether Northfield Hospital can attract a patient base quickly enough to support the services at the hospital and to cover the debt service on its aggressive expansion.

Its first clinic opened in Lonsdale opened in November and Bank says early numbers are positive. He's confident, but realistic, about the future.

"It takes a while to grow primary care practices and we're trying to grow a lot of them at the same time," he says.

Allina is holding its own in Faribault, where it and Mayo have distinct clinics and there is an independent hospital. Holets claims Allina has about 65 percent of the market share there, to 35 percent for Mayo. He doesn't agree with Mayo's belief that people can be lured south.

"We know the dividing point is basically Faribault," Holets says. "We don't think there's any draw from Lakeville to Rochester."

But while Mayo and Allina go head-to-head in Northfield and Faribault and soon in Farmington, they are allies in a $48 million hospital project further south in Owatonna.

"Owatonna is furthest south and maybe one of the least integrated but highest collaborative models," Holets says. "We have a clinic and own the hospital there, and there is an independent doctor group that is part of Mayo regional health system."

Mayo even donated the land for the hospital, and all the facilities will be clustered along the Interstate 35 corridor.

Mayo's Seifert and Allina's Holets agree that cooperation was the only option in Owatonna. The hospital was needed because there is no other care within a reasonable distance, Holets says. But there's nowhere near enough population in the area to support two facilities. The new system is designed so patients from both clinics will see their services as seamless, even though working through all the details was a challenge.

"It takes a lot of trust," Holets says.

At this point, it's too soon to tell whether all the healthcare construction will position the players to take advantage of growth in southern Dakota County and beyond—or whether the cooling housing market will leave them overextended while they wait for the growth to catch up.

Seifert says Mayo officials were surprised when they saw the strength of the population numbers for southern Dakota County and points south. He says the Highway 19 corridor, which includes Northfield, was much stronger than anticipated.

Wahman says Fairview's plans to add a clinic in Farmington later this year were based on population figures as well as the system's own record of where patients live and what they share on feedback surveys.

However tough the competition is in the short-term, the long-term picture is strong. Dakota County's household income is more than $66,000 per year. Its population in 2005 was 391,558, a jump of 10 percent in six years. Census figures show the county grew at an even faster 29 percent rate from 1990 to 2000, up to 355,904 from 275,227.

That population is projected to grow to nearly 500,000 by 2020, and maps show most of that growth will be continued expansion of the already-developed areas in the north and west corners of the county. It also happens to correspond to the areas where all those new clinics are being built.

It will be interesting to see how these new residents, who are bringing their coffee chains along with them but still are tied to downtown jobs, will choose healthcare. Will they pick it like they do a Starbucks or Walgreens, or will they give proximity a whole new definition?

Anne Bretts is a freelance writer based in Northfield.