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The Community Snapshots Project

Capturing Health System Change

Fargo, N.D.


declining population and a shrinking economic base have led to many of the changes in the health care system of rural northwest Minnesota. Increasing technology has made small family farms economically unfeasible. Younger families have left the rural farming communities, and primarily middle-age and elderly people living on fixed incomes remain. The combination of a decreasing and aging population has significantly contributed to many of the region’s small rural hospitals becoming financially unstable or closing. At the same time, local nursing homes are full, and the demand for home health services is increasing.

The fate of these rural communities’ health care systems is closely tied to actions taking place in Fargo/Moorhead, an urban center situated on the border of Minnesota and North Dakota. Competition is increasing between the two major Fargo/Moorhead-based health provider systems, MeritCare and Dakota/Heartland, and they are reaching out to rural areas for referrals. The two systems have both bought or contracted exclusively with physician practices and provide specialty care to rural communities with rotating physicians. Since patients needing inpatient care are increasingly using Fargo/ Moorhead hospitals, many rural hospitals have closed or are in financial trouble. This has reduced access to local inpatient care, but residents of rural communities seem to experience an increase in access to primary and specialty care. Transportation to emergency and tertiary care can still be a major problem for rural residents, however, especially in the winter and for the elderly.

Over the past three to five years, the Fargo/Moorhead area has seen substantial consolidation among hospitals, and hospitals and physician groups are more closely integrated. This has strengthened the interdependence between rural providers and those in Fargo/Moorhead. The composition of the hospital sector has changed from five independent hospitals, not including the VA Hospital, to three hospitals, which are organized into two competing health systems. Hospital-led networks that include vertical integration with physician groups and expansion into rural areas have developed as a result. With some reluctance, physicians are merging or affiliating with one of the two hospital systems or looking for partnerships with insurers. The completely independent physician is rare in this market. Most physicians have joined group practices connected to large physician-based clinic systems based in Fargo or Grand Forks, North Dakota. Physicians gain access to patients who are increasingly steered to these clinics through contracts between the clinic systems and insurers.

These changes are attributable to not only competition among hospitals and physicians for a declining base of patients, but also growing demands by payers (both employers and insurers) for lower-cost contracts. Although the HMO penetration rate remains quite low, preferred provider organizations (PPO’s) are gaining in popularity. Insurers are lowering prices by negotiating discounted fees with hospital systems and physician group practices rather than capitating providers or performing strict utilization review. While providers are not eager to assume risk, they recognize that capitation and direct contracts with employers are on the horizon. Provider groups are preparing by investing in information systems that will help them share risk.

Health care policy developments in Minnesota and North Dakota are not major reasons for change in this market. The Minnesota government has enacted a set of comprehensive reforms over the past four years. MinnesotaCare legislation including those specifically targeted to supporting rural providers, but they have had little effect so far. This legislation may have spurred consolidation of health plans in the Twin Cities, but the consolidation of hospitals and physicians in this region appears to be driven more by market forces. In contrast, the North Dakota government has done far less in health care policy than Minnesota has.

Some developments are considered likely, but there is much uncertainty about the future. Competition between the two health care systems is expected to increase, and more public and commercial enrollees are expected to join managed care plans. This does not necessarily mean significant HMO growth. Employers may follow the lead of one of the largest employers in the area by contracting directly with providers who can offer an integrated, managed system of care. In an area heavily dependent on Medicare revenue and agricultural price supports, federal actions could change the landscape of the health care system in this region.


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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.