Nineteen rural Minnesota hospitals band together to survive and thrive

The Headwaters Network will give small hospitals opportunities to gain efficiencies without joining large health systems.

By Jeremy Olson Star Tribune

June 27, 2024 — 10:03am

Nineteen independent hospitals across Minnesota are banding together as the newly named Headwaters Network to maintain local control of health care at a time when many rural U.S. providers are folding into large conglomerates or closing.

Leaders announced the network Thursday as a way to pursue cost-saving opportunities not available to individual rural hospital and clinic providers. The network hired Cibolo Health to manage its efforts, hoping the company can replicate its success with a group of North Dakota hospitals named the Rough Rider Network.

"Our independence is strengthened by our interdependence. The more we can work together, the better we can care for our communities," said Ken Westman, chair of the Headwaters board and chief executive of one of its founding hospitals, Riverwood Healthcare in Aitkin.

The collaboration was born out of a support group of chief executives during the COVID-19 pandemic, he said. The hospitals are scattered from Roseau and Grand Marais in the north to Winona and Blue Earth in the south. Sixteen have critical access designations that qualify the nation's smallest hospitals for boosted federal payments to stay afloat. Ten lost money on hospital and clinic operations in 2022, the most recent year for which state data is available.

Headwaters members could save money by buying bulk medical supplies and pharmaceuticals together, or by sharing virtual access to specialists in mental health or other areas they can't afford or recruit on their own, said Nathan White, Cibolo's president.

A main goal is to pool their performance data so they're large enough to pursue value-based contracts with insurers, where they can make more money if their patients stay healthy and avoid preventable diseases. Providers with only 1,000 patients in an insurance network are too small for such programs, partly because their results can be badly distorted when one patient gets sick, White said.

"When you come together as a group, now you ... might have 20,000 or 30,000 [patients]," he said. "That opens up for the first time the opportunity for rural hospitals to meaningfully participate in value-based care."

Minnesota has maintained a broad network of rural hospitals longer than most states, though Mayo Clinic's hospital in Springfield closed in 2020 and about a quarter of the state's rural hospitals are considered financially distressed. Several have been forced to make cuts this year, including the loss of maternity services at hospitals in Fosston and New Prague and the conversion of the Mahnomen Health Center into a rural emergency facility with no inpatient beds.

Westman said decisions like that will still be made locally, based on whether hospitals are doing enough of a procedure to afford it and keep their doctors and nurses proficient.

The hospitals will depend on one another, though, because their rewards from value-based contracts will be based on their collective ability to keep patients healthy.

Network leaders will set targets for the providers to reach, such as getting a high percentage of patients into their outpatient clinics for annual checkups, White said. Such visits give doctors opportunities to counsel patients on unhealthy habits, check their medications and schedule them for recommended screenings.

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