As rural areas across Minnesota grapple with the loss of key medical services and increasing hospital consolidation, one community is fighting back. The city of Fosston in northwestern Minnesota, about 45 miles northwest of Bemidji, wants to hold Essentia Health, the hospital system that took over operations of its local hospital nearly 20 years ago accountable, alleging it has failed to meet the community’s health care needs in violation of its affiliation agreement.
Last week, a Polk County judge ruled in favor of Fosston, allowing the city to take its fight to terminate the local hospital’s affiliation agreement with Duluth-based Essentia to arbitration. Essentia entered into that agreement in 2009, when it took over management and operations of the hospital.
Michelle Landsverk, Fosston’s economic development director, said that the city, which entered into the affiliation agreement alongside the hospital and Essentia, argues that care has deteriorated since Essentia took over, and is seeking to return the nonprofit hospital to local control. The city said that would better serve the city of 1,500 residents and the broader community of about 26,000 people who live within 30 miles of the hospital.
“Fosston is like the little engine that could,” said Landsverk. “It's always been a town that has figured things out, and it's not shy about taking a bit of risk for the greater good, and I think here the greater good is tremendous.”
“If you were going to pick a hill to die on, this is one that really counts.”
Fosston and Essentia have been engaged in a dispute for years over the hospital’s operations and the level of care it provides the community. The conflict reached a tipping point in 2024, when the city first tried to terminate the relationship after Essentia shuttered labor and delivery services in Fosston and diverted labor and delivery to another of its hospitals about an hour away in Detroit Lakes, or its facility even further away in Fargo, N.D. While the city’s first attempt failed, it now alleges that core medical services have worsened even more and is trying to terminate the agreement again.
Katy Kozhimannil, a University of Minnesota public health professor, said that this is a case to pay attention to as it is part of a growing trend of small, rural communities standing up for themselves.
“Rural towns across the country are looking at [how] larger entities, be that hospital systems or AI companies that are building data centers, are engaging with local leaders and with local lands and resources,” Kozhimannil said. “And I think that's a really positive thing…Fosston is really showing us the strengths of collective community voices around issues that are important to them.”
Kozhimannil has been aware of the Fosston case for years. She says community members reached out to her in 2024 to learn more about her rural maternity care research as they sought to prevent the closure of labor and delivery services.
Kozhimannil said rural closures like this can have dangerous implications. Her research shows that pregnant people have worse health outcomes when they have to travel farther distances.
“I know the drive between Fosston and Detroit Lakes,” Kozhimannil said. “It’s a long one to take for people that are in labor or going to give birth.”
The same year that Essentia shuttered services in Fosston, Mayo Clinic Health Systems closed clinics that offered obstetric services in Fairmont and New Prague. An MPR News analysis of new data from the University of Minnesota Rural Health Research Center found that, as of 2024, 700,000 Minnesotans lived in counties without hospital-based obstetrics services.
The reason for the closures tends to come down to finances. Labor and delivery units require expensive 24/7 staffing, because babies can come anytime of day or night. But the birth rate in rural areas is declining and these hospitals are delivering fewer births, so the units rarely pay for themselves. In fact, many lose money. Rural hospitals also treat a greater proportion of patients on Medicaid, which pays much less for labor and delivery services than private health insurance plans pay.
It also has become much more difficult in recent years for rural hospitals to hire medical professionals, including doctors and nurses who are ob/gyn specialists, to work in small towns.
Kozhimannil said she’s not surprised that there was an uproar in Fosston. And, unlike the typical rural hospital takeover, the city of Fosston has a vested interest in the hospital. The agreement that Essentia entered into along with the hospital and the city includes a provision allowing the city the right to terminate Essentia’s partnership if certain core medical services are discontinued.
But Essentia Health disagrees that the city can terminate the agreement at will and stressed that it has continued to make investments in the Fosston facility in recent years. In April, it broke ground on a $12 million emergency department expansion.
“By continuing to prolong this legal process, city leaders are misrepresenting the basic facts of the agreement and spending limited public resources along the way,” an Essentia Health spokesperson wrote in a statement to MPR News. “While Essentia evaluates its legal options, we will remain focused on strengthening local healthcare, supporting our staff and delivering exceptional care to the patients we have the honor to serve.”
According to court documents submitted by the city, core medical services continued to decline after the obstetrics diversion.
The city alleges that the facilities are chronically understaffed and that physicians and other medical professionals “do not want to work under Essentia’s leadership in Fosston,” and are leaving to seek employment elsewhere. Fosston also accuses Essentia Health of restricting ambulance services, leading to a number of dangerous incidents including an instance in 2024 when a woman with a serious head wound was forced to wait 29 minutes for an ambulance to arrive. When the ambulance did arrive it was from a nearby town, not from the Essentia-run facility less than a mile away.
Landsverk said that while she can’t comment on the specifics of the case, the changes should be obvious even to the casual observer.
“I've been a resident of the Fosston area for 37 years, and the hospital and clinic campus have always been a thriving hub of activity,” Landsverk said. “However, over the last seven to eight years – and drastically over the last five or six years – it's obvious that there's a decline. It used to be if I went to the clinic, I could hardly find a parking spot. Now it's bare. It's a sign, I think, of what's happening inside.”
It’s unclear when arbitration will take place, but Landsverk said it will likely be in late 2026 or in 2027.
Landsverk stressed that they’re not pushing this case to have the city operate healthcare.
“We just want the people who live in this area to have access to high-quality care close to home,” Landsverk said. “I'm really thankful that we have a local group of leaders and stakeholders that care enough to stick their necks out and say this isn't right.”
Kozhimannil said the results of the case could be significant and have implications beyond the Fosston area. While the agreement with Essentia seems to be fairly unique, she says it could help neighboring communities think through similar partnership models to ensure residents’ health needs are getting met.
“I think this court case may help us understand if that's something that carries legal weight, and if it's something that could be a model to be built on,” Kozhimannil said.
Correction (June, 29, 2026): This story has been updated to clarify that Essentia ended labor and delivery services at the Fosston hospital, but not all obstetrics care; and that patients going into labor are diverted to Essentia's facility in Fargo, not Grand Forks, as an earlier version of this story reported.
