Staffing costs push some Minnesota hospitals to the financial brink

Minnesota has emerged from the COVID-19 pandemic with a fragile network of hospitals at risk of closure and vulnerable to cuts in government aid.

Thirty-one of 127 Minnesota hospitals were financially distressed after 2023, meaning they had lost money on operations in four of the prior eight years. Another eight hospitals were one bad year away from being distressed, while others, such as Riverwood Healthcare Center in Aitkin, Minn., remained stable but lost money on operations for the first time in decades.

“We’re trying to uncover every stone we can” to cut spending without cutting medical services, said Ken Westman, chief executive of Riverwood, which lost money on hospital operations in 2022 but recovered in 2023.

The Star Tribune analyzed new state data to see whether more hospitals had fallen into financial distress since the end of the pandemic and before the start of any cuts President Donald Trump’s administration proposed to federal health care spending.

Import tariffs could also raise the cost of essential drugs and equipment hospitals can’t acquire domestically, but state leaders are particularly worried about cuts to Medicaid. The state-federal program provides health benefits to 20% of Minnesotans, up from 15% a decade ago.

U.S. Sen. Tina Smith, D-Minn., visited Riverwood last month and Hendricks Community Hospital in western Minnesota on Wednesday to highlight the vulnerability of rural hospitals. They’re especially at risk if Congress advances a budget that cuts an estimated $1.5 billion per year from Minnesota’s Medicaid program.

U.S. Rep. Kelly Morrison held a forum Tuesday in Bloomington with Gov. Tim Walz and predicted dire consequences if federal losses force Minnesota to cut people off Medicaid or pay hospitals less for their care.

“Entire hospitals may shut down,” she said.

The news isn’t all bad: Operating margins exceeded 10% for 32 hospitals in 2023, the most recent year for which comparable state data is available.

And some money-losing hospitals in 2023 showed stronger results in 2024, based on their own financial reports. But the state data reveals a widening gap in financial performance that could poke holes in Minnesota’s hospital safety net, which keeps most people within 30 miles of an emergency room and 60 miles of a major trauma center.

“There is a clearer distinction between the haves and the have-nots, meaning hospitals who are constantly struggling,” said Stefan Gildemeister, state health economist.

Twelve hospitals posted operating losses of 10% or more in 2023, the highest total in at least a decade. Kittson Memorial Healthcare Center in Hallock, Minn., stayed financially healthy for years, even as the population in northwest Minnesota declined. But its operating loss ballooned to 23% in 2023.

Andrea Swenson has dedicated her career to the hospital in Hallock, starting in high school when she worked as a dietary aide before returning after college as a registered nurse. She then earned her master’s degree and eventually became Kittson’s administrator.

At one time, the hospital could rely on a local pipeline for workers, but interest in health care careers evaporated after the pandemic. Kittson had no choice but to hire outside contract nurses and health care providers at double or triple the cost, Swenson said.

“We don’t have eight people who do one job. We have one person who does eight jobs,” she said. “In our hospital, we staff with two nurses. That’s all we have. We can’t have any less than that. We can’t cut any more than that.”

Hospital fortunes rise and fall from year to year, especially when older buildings need one-time repairs or technology upgrades. So the Minnesota Department of Health takes a longer view of financial performance through eight years before labeling hospitals as distressed.

The Star Tribune based its analysis on operating revenues for hospital operations only. In some cases, hospitals had other businesses — such as home health care services or pharmacies — that improved their bottom lines or deepened their losses.

Hospital leaders said their staffing problems peaked in 2023, when burned-out doctors and nurses retired early or found jobs elsewhere. Appleton Area Health’s losses on hospital operations went from 7% in 2022 to 16% in 2023, and chief executive Greg Miner said it was largely because the hospital spared no expense to fill open shifts.

“Temporary staffing is what really kills this hospital,” he said.

Repair needs accentuated the losses in 2023, but Miner said the hospital is poised for a comeback. He said he is creating a family culture at the hospital to recruit doctors. Appleton is also opening a clinic in nearby Hancock and debuted an InstaCare online urgent care for anyone in Minnesota.

“Imagine yourself being at a lake in Minnesota, and your kid has a sore throat. Well, you can dial up and take a look through a telehealth [visit],” Miner said. “And we will see you Monday through Friday, 8 to 5. You would be surprised how that is starting to catch on.”

More is at stake than medical access. The hospital became Appleton’s largest employer after a prison closed in 2010, and its middle- and upper-income jobs are irreplaceable to the largely agricultural local economy.

Being small isn’t necessarily the problem. Hospitals with 25 or fewer beds qualify for federal critical-access designations and payments from the Medicare program for senior citizens. Those help them come closer to covering their costs.

Sanford Health’s 14-bed hospital in Jackson, Minn., routinely posts operating gains of 20% or higher. It has the critical-access designation and doesn’t have to subsidize money-losing operations such as nursing homes tethered to other hospitals, said Eric Hilmoe, chief operating officer for Sanford’s southwest Minnesota region. Just to the west, though, Sanford’s 48-bed hospital in Worthington is distressed while maintaining a full range of hospital services for a wide geographic area without critical-access support.

Federal cuts threaten even metro hospitals, especially the trauma centers at North Memorial in Robbinsdale and Hennepin Healthcare in Minneapolis, Morrison said during Tuesday’s forum. Hennepin is already financially distressed.

Fifteen of the 20 hospitals that posted the largest operating losses in Minnesota in 2023 were independent. Gildemeister said hospitals affiliated with larger systems benefit from efficiencies, such as cheaper electronic recordkeeping and bulk pharmacy orders.

But even affiliated hospitals are vulnerable: Mayo Clinic Springfield closed in 2020 under financial pressure.

No Minnesota hospitals have closed since 2020, but nine held public hearings last year, which state law requires when closing units. Three stopped scheduling baby deliveries while two closed inpatient mental health units.

Minnesota’s smallest hospitals saw a 15% decline in inpatient admissions from 2019 to 2023 and a 6% decline in childbirths. But they encountered a 12% increase in ER visits, partly because patients with reduced health care access have nowhere else to go, said Dr. David Taylor, Riverwood’s chief medical officer.

Taylor recently tended to a patient in the ER who couldn’t schedule an appointment to address an irregular heartbeat.

“I sat down with him and answered questions that nobody had answered with him because he couldn’t get in to see his cardiologist,” Taylor said. “I mean, that’s not [supposed to be] my role. That’s not my expertise. ... He just got a really expensive counseling visit.”

If more people lose Medicaid, they will resort to ER visits, he said. The hospital, in turn, will lose more money because federal law requires treating those patients, regardless of whether they have insurance.

Riverwood’s survival strategy is partnerships. The independent hospital shares surgeons with Cuyuna Regional Medical Center, 20 miles to the west in Crosby, Minn., that neither could support individually. Riverwood also helped form the Headwaters Network, a collaboration of 17 hospitals that are standardizing medical practices and pooling results to earn pay-for-performance rewards from insurers.

Community Memorial Hospital in Cloquet, Minn., also shares its childbirth simulation mannequin, allowing Riverwood’s obstetric workers to keep their skills sharp, even in years when they deliver relatively few babies.

The Cloquet hospital is financially distressed, having routinely posted gains until 2019, when it started losing money every year on operations. Blue Cross and Blue Shield of Minnesota funded the simulator in 2022 in Cloquet, which is one of the smallest hospitals in the state that still schedules childbirths.

All options are on the table when it comes to the survival of Kittson, which treats Hallock-area residents who otherwise would have to drive 50 to 70 miles for hospital care. Swenson said she has considered following the lead last year of Mahnomen Health, which took advantage of a new federal program and became the Midwest’s first rural emergency-only hospital with no inpatient services.

Kittson shelved the idea, for now, based on feedback from residents. The hospital already shut down its operating room and halted eye procedures after it lost an ophthalmologist.

“They value everything we offer because we already do the bare minimum,” she said. “Nobody wants to see any of these things go.”