‘We need help now’: Leaders say struggling HCMC requires a cash infusion

HCMC is having major money problems.

Executives at the nonprofit parent organization that runs the safety-net hospital in downtown Minneapolis say jobs and patient services 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 say red ink at the taxpayer-supported hospital could hit $36 million, due in part to a large number 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.

Among other challenges were delayed purchases of important medical equipment and the prospect of staff and service cutbacks, they said.

“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.”

“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. The payments are low compared with those from commercial health insurers. But Hennepin Healthcare, in particular, has needed help to close this gap and has received extra federal funding since 2022.

The additional money, however, has fallen short of expectations because of lower enrollment in Medicaid managed care plans, officials said, and lower-than-projected use of health care services — two factors that drive the funding formula.

In addition, Hennepin Healthcare leaders say care costs for people lacking health insurance or the means to pay medical bills have nearly doubled since 2020 and are approaching $100 million this year.

Hennepin County provides about $40 million each year to help pay for the roughly three-quarters of the uninsured who are county residents, but the gap is widening.

In2023, HCMC was one of 31 Minnesota hospitals that fit the state’s definition for being distressed by operating losses.

Minnesota Department of Health data from that year shows Hennepin Healthcare lost more revenue than any other hospital in the state. The reasons were charity care or bad-debt adjustments, meaning costs for patients who received free or discounted care or otherwise didn’t pay, likely because they lacked health insurance.

In June, the Hennepin Healthcare board created a task force to find ways to save money and address the deficit. The task force has met five times and hopes to release a budget plan by mid-August.

The Legislature created Hennepin Healthcare, a subsidiary of Hennepin County, to run HCMC and related clinics, while the county owns 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 are on the hook.

Instead, the County Board took a more active oversight role and has been scrutinizing the health system’s finances. 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, the health system’s flagship hospital and Minneapolis’ largest downtown employer.

Besides being a safety net for the poor, it provides vital services. Those include a level one trauma center for accident victims and a training ground for many of the state’s doctors.

The hospital and county boards must approve all final budget decisions. Health system leaders say it’s 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.”

“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 delayed buying 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 a public health crisis in 2020, and 75% of HCMC patients are people of color, many of them among 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. She said she is eager for hospital leaders to explain to county officials and taxpayers how they can improve the institution’s finances.