Hospitals across Minnesota report more financial stress

Hospitals and health systems across Minnesota are reporting more financial stress as costs continue to rise.

With higher labor costs and inflated expenses for services and supplies, more than 70 hospitals across the state collectively tallied an operating loss of $419 million during the first half of 2023, according to a report Monday from the Minnesota Hospital Association.

The results were worse than the total loss of $228 million for these institutions during the same period last year, the trade group said.

The study looked at financial results from the participating facilities — which account for a little more than half of the state's general acute care centers. It did not identify specific medical centers or health systems.

Earnings from the hospitals' investment portfolios were not included in the analysis.

"The costs of labor grew by 7% and supply and service costs grew by 6%," the Minnesota Hospital Association said in a summary of findings from the new report. "Nearly a quarter of member hospitals and health systems reported labor costs rising by double digit percentage points, and a third of hospitals said supply and service costs had risen by more than 10% over 2022."

To varying degrees, the findings fit with recent disclosures by the Allina and Fairview health systems, each of which cited industrywide challenges when announcing significant job cuts over the past several months.

Across the country, hospitals and clinics are struggling with what analysts have described as a nationwide "labordemic" in health care, where labor shortages add to costs even as some hospitals were starting to see a degree of improvement this summer.

In Minnesota, hospitals say they also are struggling as more patients are covered by government-sponsored insurance coverage that provides lower reimbursement than employer-sponsored health plans.

Hospitals and health systems are facing "grave financial challenges," Dr. Rahul Koranne, president and chief executive officer of the trade group, said in a statement.

Financial results have been mixed across a number of large health systems in Minnesota.

Both Allina and Fairview posted sizeable operating losses during the first half of 2023. Whereas the loss at Allina was much larger than during the first half of 2022, there's been less red ink this year at Fairview.

Rochester-based Mayo Clinic, which was not part of the new study, has seen stronger operating income during the first half of the year, according to a Star Tribune review of financial statements. There's also been improvement this year at South Dakota-based Sanford Health, which operates many hospitals in greater Minnesota.

But for the fiscal year ending June 2023, both St. Cloud-based CentraCare and Duluth-based Essentia Health reported less operating income than the previous year — a worsening that's similar to the numbers being reported by the Minnesota Hospital Association.

The new survey includes data for not just large health systems, but also a number of small hospitals, Koranne said in an interview. Particularly for people in small communities where local hospitals are losing money on operations, "that's real crisis for you — and that's why this alarm bell is sounding," Koranne said.

"This is a statewide view. ... The environment is significantly worse and the crisis is significantly worse," Koranne said.

There's a risk that a few small rural hospitals in Minnesota might not survive, he said.

Government health insurers must improve payment levels, Koranne said, and the state needs to solve a problem where hospitals can't discharge patients to nursing homes and other step-down facilities because of staffing problems at those care centers.

"We have got to look at a generational investment in health care workforce, as the baby boomers leave the workforce," Koranne said. "This is going to take a large societal commitment."