HCMC Hennepin Healthcare executives say hospital is losing money

HCMC is having major money problems.

Executives at the nonprofit parent organization that runs the safety-net hospital in downtown Minneapolis are sounding the alarm, saying jobs and patient services at the hospital are increasingly threatened by a yawning budget gap.

HCMC’s parent, Hennepin Healthcare, has lost money on operations in seven of the past eight years, officials say. This year, they expect red ink at the taxpayer-supported hospital could hit $36 million, due in part to a large volume of uninsured patients.

The health system’s executives spoke candidly with the Minnesota Star Tribune this week about the increasing financial challenges — including the growing number of patients who cannot pay for their care, the delayed purchases of important medical equipment, and the prospect of staff and service cutbacks.

“That is really falling off a cliff for us,” Mohamed Omar, Hennepin Healthcare board chair, said of the need to call the community’s attention to the hospital’s budget pressures. “This is a challenge we need help with and we need help now.”

As the region’s biggest publicly funded hospital, HCMC treats many lower-income patients who lack insurance or rely on low-paying Medicaid coverage. But that mission is increasingly difficult for the health system and government partner Hennepin County to afford.

“Our finances are not very good on a good day,” said Dr. Thomas Klemond, interim CEO. “We are almost always on edge.”

Complaining about Medicaid reimbursements is hardly uncommon for hospitals. Medicaid payments are low compared to those from commercial health insurers. But Hennepin Healthcare in particular has needed help to close this gap, receiving extra federal funding since 2022.

Hennepin Healthcare is a subsidiary of Hennepin County, which was created by the Legislature to run HCMC and its related clinics, while the county continues to own all the hospital’s facilities. The county is also responsible for approving the hospital’s budget, and if the health system cannot pay its debts, taxpayers will be on the hook.

There’s ongoing tension between the county and health system boards due to the hospital’s troubled finances. Hennepin Healthcare leaders have resisted calls from their unionized employees for the county to retake control of the hospital.

Instead, the County Board took a more active oversight role and has been scrutinizing the health system’s finances. There’s big implications, since the health system’s operating agreement includes a last resort provision for up to $50 million in aid if the hospital’s finances are deep in the red.

Short of a big cash infusion, health system leaders acknowledge the coming budget will likely include cuts to services and the 7,300 staff members at HCMC, which is the health system’s flagship hospital, and Minneapolis’ largest downtown employer.

In addition to being a health care safety net for the poor, it provides vital services like a level one trauma center for accident victims and a training ground for many of the state’s doctors.

All final budget decisions must be approved by the hospital and county boards. Health system leaders say its important they stabilize the hospital’s finances because recent state and federal budget changes will bring even more challenges.

“We can’t continue as we have, which probably means we can’t continue doing everything we are doing,” Klemond said. “Seventy percent of our expenses are staff.”

Klemond first raised the possibility of staff and service cuts this spring in a message to workers that noted the hospital had just a few days cash on hand. “The situation is serious, but it is not hopeless,” the interim CEO wrote.

Before a budget is finalized, health system leaders hope the County Board will approve their request for a loan of up to $30 million for medical equipment that hospital leaders put off purchasing to help their budget.

Nneka Sederstrom, the health system’s chief equity officer, said budget challenges put the hospital’s core mission of reducing health disparities at risk. The county declared racism as a public health crisis in 2020 and 75% of HCMC patients are people of color and many of them are the community’s most vulnerable.

“We have done some wonderful dancing to keep things going and keep the doors open and care for the people we need to care for,” Sederstrom said. “But we can’t keep allowing substandard equipment and tools that need to be replaced … just because we are financially strapped.”

County Board Chair Irene Fernando, who also sits on the health system board, said she was closely involved with the health system’s budget planning and was eager for hospital leaders to explain to county officials and taxpayers how they can improve the institution’s finances.