A Minnesota state court judge has ordered the dispute between the city of Fosston and Duluth, Minn.-based Essentia Health to proceed through arbitration, which will decide whether the city can terminate a 2009 affiliation agreement that gives Essentia operational control of Fosston Hospital.
The Polk County District Court issued the order June 23, according to a news release the city shared with Becker’s. Under the 2009 agreement, First Care Medical Services, a city-owned nonprofit that had previously operated the hospital, ceded operational control to Essentia while retaining ownership of the property and the hospital’s license. The city has maintained it has the right to terminate that arrangement; Essentia has disputed that position.
“This ruling allows the city to take the next step in a process we have pursued on behalf of the Fosston community,” Mayor Jim Offerdahl said in a statement. “Our goal has always been clear: to protect and strengthen access to high-quality healthcare in Fosston for the people who live, work, and seek care here.”
In a statement shared with Becker’s, Essentia said the city is “misrepresenting the basic facts of the agreement” and “spending limited public resources” by continuing the legal process. The health system said it is evaluating legal options and remains focused on operating Fosston Hospital, noting the facility recently was recognized as one of the nation’s top 100 critical access hospitals. In addition, the system broke ground on a $12 million emergency department expansion this spring.
In 2024, a previous arbitration panel handling this dispute ruled in Essentia’s favor on issues related to the affiliation agreement, though the current dispute over the city’s attempt to terminate the agreement will proceed through a new arbitration process.
The next steps involve selecting arbitrators and establishing a hearing schedule. The city said it expects a resolution no earlier than 2027. The dispute traces to Essentia’s 2022 pause of labor and delivery services in Fosston, after which the city council voted unanimously in November 2024 to terminate the affiliation agreement, a move Essentia characterized as outside the city’s legal authority.
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