Survey: Minnesota hospitals report hefty financial losses

University of Minnesota hosptical
The Minnesota Hospital Association said that 67 percent of its members that took part in a recent survey reported losses in the first half of 2023.
Mark Zdechlik | MPR News file photo

The Minnesota Hospital Association reported Monday that many of the state’s health systems are losing money at a growing clip.

The MHA, a trade group that represents care providers that include large Twin Cities health systems and small rural hospitals, said that 67 percent of its members that took part in a recent survey reported losses in the first half of 2023. That’s a sharp increase over the 55 percent that reported negative operating margins in 2022. 

“These hospitals are clinging and hanging from the side of a very dangerous cliff, and their arms are getting tired. We must act before they crash,” said MHA President Dr. Rahul Koranne in an interview with MPR News.

Koranne said that overall, labor costs are up seven percent, and inflation has pushed up supply and service costs six percent. He said that hospitals are also taking on larger numbers of Medicare and Medicaid patients, and those programs’ reimbursement rates are far below what providers spend on care. 

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Another problem is that a lack of capacity elsewhere, particularly in the mental health system, has led to many patients languishing in emergency rooms. 

“There are thousands of patients that are stuck inside our hospitals because hospitals right now are functioning as a group home, as a nursing home, as a mental health institution,” Koranne said. “And during the first five months of this year, there were 76,000 patient care days that were not paid for.” 

Koranne said these financial pressures have led to the closure of more than 50 hospitals across the country, and the problem is most acute at rural facilities. 

Steve Parente, who teaches health care finance at the University of Minnesota’s Carlson School of Management, said the state’s growing number of retirees means that hospitals are relying increasingly on payments from Medicare. 

“The challenge is that the population is aging in general in the state, particularly in the rural outstate areas, and because of that you’re going to see a greater and greater share of Medicare patients, and the reimbursement rate could be literally half of what it would otherwise be from private insurance,” Parente said. 

Given the state of budget negotiations in Congress, Parente said that it would likely take a massive wave of hospital closures and consolidations to convince lawmakers to increase Medicare and Medicaid reimbursement rates. 

He also said that labor costs are rising in part because staff burnout during the pandemic led many people to leave the profession, and there are too few in line to replace them. 

Parente notes that the MHA did not make public the underlying data that it used to compile the financial report on Minnesota hospitals. 

“I’d like to see a much deeper dive,” Parente said. “I’d like to see the institutions themselves. I’d like to see five-year trends by institution. Particularly broken down within the systems,” Parente said. “What’s going on under the hood?” 

The Mayo Clinic health system is not a member of the Minnesota Hospital Association and is not included in the survey. But the Rochester-based health system is in far better financial shape than others in the state, with reported operating income hundreds of millions of dollars in the black.