As they recruit a new CEO for HCMC and its network of clinics, hospital leaders will be writing a tough job description: Its urban trauma center is bleeding money, its research agenda is bruised by an ethics scandal, and it must thrive in a national health care system that punishes medical centers that serve the poor.

The hospital’s umbrella organization, Hennepin Healthcare, lost $49 million in 2016 and $29 million in 2017 on hospital and clinic operations, after posting modest income gains the prior two years, according to the most recent public data.

Although some losses are expected for a large, urban public hospital — HCMC is a federally designated safety-net hospital that also receives county tax support — health care and county officials said the latest results reveal the prolonged toll of state and federal policies that put Hennepin Healthcare at a disadvantage.

“Until costs are better controlled, HCMC will still pay a heavy price for being a statewide safety net,” said Michael Scandrett, a health policy consultant with MS Strategies of Minneapolis. That’s because it serves a high percentage of patients who cannot afford health insurance or are on public programs that pay less than the cost of delivering the care.

Solving those financial problems will be critical, he said, because Hennepin Healthcare serves a broader role than most people realize. Beyond its role as a safety-net hospital and clinic system, it operates a primary trauma center respected for its expertise in burn treatment, it is a major provider of mental health and chemical dependency treatment, and it trains a substantial share of Minnesota’s doctors through residencies.

“If HCMC closed,” Scandrett said, “the crisis would be enormous and they would be calling special legislative sessions and tapping into emergency reserve funds to shore it up.”

Hennepin Healthcare is not in danger, said Dr. John Cumming, who was appointed acting chief executive after Dr. Jon Pryor abruptly resigned earlier this month. When it posts results for 2018, they will likely show that it lost money on operations again, but the loss should be less than the county budget’s estimate of $15 million, he said. And it shouldn’t have to revisit a painful chapter in its recent history: budget shortfalls in 2017 that resulted in more than 130 layoffs, he said.

“The organization continues to meet a very vital community and regional need, and is challenged obviously by some of the payer mix that we have,” Cumming said. “But in general, I would not say the hospital is in danger.”

Financial dilemma

The “payer mix” dilemma comes from the high share of Hennepin Healthcare patients who are covered by Medicaid, a federal-state program for the poor and disabled, and Medicare, the federal program for those 65 and older. Both pay about 87 cents for every dollar hospitals actually spend on patients, so they try to make up the difference by attracting a large mix of privately insured patients. But roughly 7 in 10 Hennepin Healthcare patients are covered by one of those two government programs.

Hennepin Healthcare also writes off more than 3 percent of its charges due as charity care or bad debt when patients can’t pay their bills. That’s the highest percentage among Twin Cities hospital systems, though some of Minnesota’s rural hospitals write off more.

Serving that needy population is “why HCMC was formed so many years ago,” said Dr. Rahul Koranne, chief medical officer of the Minnesota Hospital Association. “They’ve done a great job of being a safety net, and that comes at a cost.”

The medical center also has been a national leader in research involving emergency medicine, though its recent study on the use of ketamine to calm agitated patients was faulted by the U.S. Food and Drug Administration for a lack of oversight and safeguards to protect patients.

Delivering fewer babies

Some county leaders cautioned against accepting “payer mix” as an inevitable reason for Hennepin Healthcare to post financial losses. Hennepin County Commissioner Mike Opat said he hopes the next chief executive will find efficiencies that put the health care system back in the black. The board will soon conduct a search for an interim chief executive before launching a sustained national search for a permanent replacement.

A loss of around $20 million per year might seem small for a health care organization with nearly $1 billion in revenue, Opat said, “but you’re not supposed to be losing $20 million. You’re supposed to be making $40 million. It’s not so much that it’s a terrible crisis. It’s that it’s supposed to be getting better and it’s not.”

State hospital data show Hennepin Healthcare may not be winning the competition for lucrative patients. Its admissions for cardiac patients declined from 1,709 in 2013 to 1,578 in 2017, though that is partly due to more heart problems being treated in outpatient clinics. But the hospital is also losing the race for maternity care, often considered a “gateway” service because new parents often continue to use the hospitals in which their children were born.

Births at HCMC declined from 2,233 in 2013 to 1,896 in 2017. Births statewide have increased slightly in that period.

The hospital has seen a substantial increase in admissions for chemical dependency — 596 in 2013 to 821 in 2017 — that tracks with the rising rate of opioid addictions in the state. Insurance reimbursement for chemical dependency and mental health, however, is generally poorer than reimbursement in other medical specialties.

At the same time, neurology admissions increased over the last five years at Hennepin Healthcare, which recruited a renowned neurosurgeon, Dr. Uzma Samadani, who also has been a national leader in concussion detection research.

Hennepin Healthcare’s strategy for improvement has largely rested on the construction of a $225 million outpatient center across the street from the hospital, which is designed to attract more privately insured patients and downtown workers. The center has been open less than a year, so whether that strategy has worked is unclear.

Cumming expressed optimism about the system’s outlook. Investments in improvements at Hennepin’s other primary care clinics resulted in an increase last year in their share of patients who have private insurance, from 17.7 percent to 33.2 percent. HCMC leaders also noted that losses in 2016 and 2017 were exacerbated by pension obligations that had to be reported.

County Board Chairwoman Marion Greene, who also serves on the health system’s board, said that investment strategy should continue amid new leadership to see if it works.

“I don’t think at this moment we need a strategy change,” she said. “Yes, we want all ideas on the table, because health care is a tough space, but this is not a time where we need an about-face or anything like that.”