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Fairview Health will cut almost half the beds at its Bethesda long-term care hospital in St. Paul and trim an equivalent share of its staff as part of its plan to address a budget deficit and new challenges in the evolving U.S. health care system.

The reduction from 89 to 50 beds, announced to staff Friday, will have ripple effects across the state because Bethesda is one of only two federally designated long-term care hospitals (LTCHs) in Minnesota that provide extended rehabilitation and care to patients after they are treated at general acute hospitals.

Bethesda will now provide that extended care to patients transferred from other hospitals in the Fairview system, such as the University of Minnesota Medical Center, but it will no longer accept patients from other hospital systems except in emergencies, said James Hereford, chief executive of Fairview Health.

"We're going to size it more appropriately to serve our patients," he said, "because we simply can't … run an LTCH that would serve needs beyond those of our own system."

The cuts were proposed this fall in "war room" sessions by Fairview leaders and reviewed by Fairview's board Thursday in response to a projected budget deficit of as much as $80 million next year, and in an effort to modernize the hospital and clinic system under its new M Health Fairview brand.

The board did not review or take action on another key proposal, closing St. Joseph's Hospital in downtown St. Paul, but it did receive information about the closure of Twin Cities sleep medicine facilities.

The Bethesda move is the latest in a series of hospital consolidations in Minnesota, including Allina Health's streamlining of its Mercy and Unity hospitals in the north metro, and Mayo Clinic's merger of hospitals in Austin and Albert Lea. Mayo also announced the closure of its Springfield, Minn., hospital this week, the first outright closure in Minnesota since Albany's hospital in 2015.

Bethesda has existed as a hospital in some form in St. Paul since 1883, when it was founded to serve the growing Swedish immigrant population.

In the 1980s, it was part of a national wave of facilities that took advantage of favorable federal regulations and converted to long-term care hospitals. After Medicare leaders decided in 1982 to exempt long-term care hospitals from planned rate cuts, the number of such hospitals increased tenfold to around 400. Bethesda was converted in 1989 by its parent organization, HealthEast, which merged with Fairview in 2017.

Typical LTCH patients include those who are still on ventilators but have stabilized while in intensive care at general hospitals, or who are slowly recovering after hospital treatment of strokes or traumatic brain injuries. About 80% are funded by the federal Medicare program for the elderly or the federal-state Medicaid program for the poor and disabled — making it especially affected by changes or cuts to these programs.

Long-term care hospitals have been controversial; some analysts believe they waste billions in spending and that many patients could do just as well in skilled nursing homes.

Prof. Neale Mahoney of the University of Chicago and colleagues estimated that the government could save $4.6 billion by eliminating them. The researchers also found no significant decline in mortality rates for patients transferred to LTCHs rather than nursing homes for extended care.

"For the majority of patients who are treated in LTCHs, a [skilled nursing facility] would provide similar quality of care at one third of the cost," Mahoney said in an interview this week. "It's the most compelling evidence of waste I've seen in the U.S. health care system, which I think is a reasonably strong statement."

Hereford defended Bethesda as providing a high level of hospital care for patients that nursing homes can't afford to match, especially given their reimbursement rates in Minnesota.

"It's an important part of our continuity of care," he said.

Even so, a reduction was necessary at Bethesda as insurance reimbursement for long-term hospital care is worsening, Hereford said. The growth of bundled payments and risk-based insurance contracts have made health care providers more responsible for the cost of patient care and more wary of unnecessary expenditures. Minnesota also has been switching its Medicare plans for seniors from traditional cost plans to Advantage plans, which health care analysts said have been tougher on LTCHs.

State records show that Bethesda lost money in 2014 and 2016, had a .01% net margin in 2018, and had already scaled back from the 126 beds it had in 2013. State data also showed a 7% decline in Bethesda's admissions since 2013 and a reduction in the average length of stay from 30 days to 25.

Beds in short supply

Refusing to take patients from other hospitals is a competitive move in a community where hospitals systems have cooperated on everything from surgical safety protocols to labor bargaining. Hereford said he doesn't expect the move to jeopardize cooperation in other areas.

The announcement caused concern at other hospital systems, especially coming when flu season and wintertime illnesses can fill beds. While Allina Health hospitals have largely sent patients for extended care to Regency Hospital, a private LTCH in Golden Valley, their leaders worry that everyone else outside of Fairview will now be trying to send patients there.

"The loss of any beds will have an impact on all hospitals and specifically the availability of intensive care unit beds that are often in short supply," Allina spokeswoman Terri Dresen said in a written statement.

Fairview on Friday notified 340 workers at Bethesda and other locations that their jobs were being eliminated. Some will be transferred, though.

Fairview also is closing a sleep clinic in Chisago City and sleep study centers in Eagan and Maplewood, along with retail pharmacies in Brooklyn Park and Eden Prairie.

Some health care analysts said they believe cuts were inevitable after a hasty merger that rescued the financially struggling HealthEast but didn't generate enough efficiencies and new revenue to compensate. Fairview also agreed last year to increase funding of medical research at the U as part of its new M Health Fairview collaboration.

Others such as Dr. Rahul Koranne of the Minnesota Hospital Association said the cuts reflect the "reckoning" that all hospitals face as prices for medication, electronic record-keeping and medical devices rise faster than insurance payouts.

"It's very hard to do," he said, "when you are backed in a corner like we are."

Jeremy Olson • 612-673-7744