Essentia Health wins arbitration dispute over control of Fosston hospital

An arbitration panel has sided with Essentia Health in its dispute with community leaders in the northwestern Minnesota town of Fosston over control and governance of the local hospital.

The medical center is owned by a local nonprofit but is operated by Duluth-based Essentia under an affiliation agreement that dates back to 2009.

Fosston leaders have been trying to restore the local nonprofit’s decision-making authority after Essentia announced earlier this year that baby deliveries would no longer be scheduled at the facility. The decision made permanent a 2022 temporary suspension of labor and delivery services, which directed patients more than 60 miles away to the health system’s regional hospital in Detroit Lakes.

With the ruling announced Wednesday, Essentia Health says it will continue to operate the hospital, clinic, assisted-living and long-term care facilities in Fosston, plus clinics in Bagley and Oklee.

“Now that the arbitration process is over, Essentia is focused on the opportunity to engage our patients, colleagues and the community in building a shared vision for the future of health care in Fosston,” said Dr. Stefanie Gefroh, interim president of Essentia Health’s West Market, in a statement.

Arbitrators were asked to rule on whether Essentia eliminated a “core” service by discontinuing deliveries, because if so the city of Fosston would then have the right to terminate the affiliation agreement. But the panel in a 2-1 vote concluded that labor and delivery is just one aspect of obstetrics (OB).

“OB is a ‘core’ service under the agreement, encompassing labor and delivery as part of comprehensive care for pregnant women,” the ruling states. “Simply put, while the delivery of the baby is an essential component, it is not the sole care provided to a pregnant woman.”

Fosston officials, including the town’s mayor, were involved in the arbitration because the city has a legal connection to the nonprofit owner of the medical center, which historically was a municipal hospital.

“Although the recent ruling found no breach of contract regarding [obstetrics] services, the city of Fosston believes there have been other breaches of contract by Essentia Health that can, and will, be pursued as part of ongoing efforts to restore local governance,” a local group called the First Care Taskforce said Wednesday in a news release.

The city launched this task force in April to explore whether First Care Medical Services, the local nonprofit owner of the medical center, could resume control at the hospital, potentially to find a different health system partner.

Fosston is located about 45 miles west of Bemidji.

The shutdown of labor and delivery services in the city reflects a broader trend in Minnesota. The state led the nation with 22 hospitals closing their obstetrical units from 2011 through 2021, according to a report last year by the Chartis Center for Rural Health.

In 2022, Essentia suspended baby deliveries in Fosston due to a lack of doctors and nurses with training and experience in obstetrics.

Earlier this year, the health system made the decision permanent because of declining births in Fosston plus continuing struggles to recruit health care providers to the community. In addition, Essentia Health says its hospital in Detroit Lakes is better equipped to handle unexpected complications during labor.

Meanwhile, in Fosston, the health system continues to provide outpatient care before and after deliveries, Gefroh said, as well as well as a number of women’s health services.

Essentia Health owns or operates 14 hospitals, 78 clinics and 24 retail pharmacies plus a number of long-term care and assisted living facilities. The nonprofit has about 15,500 employees.