By Lois E Johnson
Moose Lake Star-Gazette 

Mercy Hospital considers transition to 501(c)(3) status


October 11, 2018

Mercy Hospital is going to be examining whether changing its status to a 501(c)(3) managed operation would be of benefit.

In a press release dated Oct. 4, it was explained that the current board and a separate board for Moose Lake Health, which will operate the hospital under 501(c)(3) status, will be studying the option for the next year.

The 501(c)(3) status was part of the hospital’s strategic plan, the press release stated.

A 501(c)(3) structure is common for non-profit organizations, such as historical societies. It is also used for community hospitals, it was stated in the press release.

Mercy Hospital is currently considered a state governmental organization as a hospital district.

The hospital district consists of several cities and townships in the area: City of Moose Lake, City of Barnum, City of Kettle River, and Moose Lake, Silver, Barnum, and Kalevala Townships.

Representatives from each entity are elected to serve on the Mercy Hospital Board. One board member is an at-large position.

Two members of the hospital board would serve on the Moose Lake Health Board, it was stated in the press release.

Each board could have a separate role, although that is yet to be determined. In some community hospitals that have a 501(c)(3) status, the district board oversees the building and equipment, and the new board oversees the operations of the hospital. Space is leased in the hospital building by the health board. Other details will be determined as both boards meet once or twice a month during the study, it was stated in the press release.

The advantages of changing to a non-profit status are: partnering with other nongovernmental providers (independent clinics, hospitals and/or larger systems) on some services that puts Mercy in a stronger financial position, be eligible for more grants that a governmental organization does not have access to, and have the ability to recruit board members that would be helpful to the organization, such as a physician or an attorney. Control of the hospital would be kept local, it stated in the press release.

The disadvantages of the 501(c)(3) status are that the hospital cannot garnish a person’s state income tax to recover funds for unpaid bills, a potential of less local donations to support the local hospital, less use of local services provided by the hospital, and the feeling by some that there would be less control over the local hospital.

Merging with Essentia Health was once examined by the board, and that is still a concern.

“This is actually a mechanism to assure that governance is accomplished through local control,” it stated in the press release. “In fact, it has already been suggested that a part of any potential agreement with the 501(c)(3) could prohibit transferring control of the hospital to any larger entity without district board approval.”

It was stated in the press release that, although it has not yet been determined, the 501(c)(3) board would meet monthly, and the district board would meet quarterly to monthly to make sure that the terms of the lease are followed.

Joint meetings between the two boards are expected to begin in late October or early November, it was stated. The exploratory work is slated to be completed in a year, by October 2019.

The existing district board would then determine if the change to a 501(c)(3) is beneficial. A decision is expected by December 2019 or later, it was stated.

A vote by the public is not required but public sessions may be scheduled to gather information and answer questions.

Currently, the hospital has the ability to levy residents and businesses in the hospital district. That will be discussed by the two boards but, being that the district board will remain in place, the ability to levy (tax) will most likely also remain in place, it was stated in the press release.

The district board would vote each year whether or not to tax. If there is a vote to tax, it would only be for physical assets that would belong to the district.

The tax income could not be used to cover shortfalls in operations, employee wages, utilities or supplies.

The Mercy Foundation would still remain a separate entity, it was stated in the press release.

Other hospitals that have converted to a 501(c)(3) operation are the Cuyuna Medical Center, Lake Region Healthcare in Fergus Falls and District One Hospital in Faribault, it was stated in the press release. There have been 14 hospitals that have converted in the last 10 years.

“All have established many more relationships with partners since changing,” it was stated in the press release. “This includes relationships with physicians groups, specialty providers, other community hospitals as well as partnerships with larger systems and organizations that serve the community.”


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