Minnesota hospitals sounded the alarm Tuesday on their financial security, describing rural service line closures and worsening access they said are being exacerbated by insurer and pharma industries’ administrative “mandates” and likely to worsen with federal funding cuts slated to begin in just over two months.
The Minnesota Hospital Association, in a press event, convened the heads of four rural, nonprofit health systems to describe the operating challenges they’re currently facing.
Broadly, they painted funds from scrutinized funding mechanisms like the 340B drug discount program as vital toward subsidizing other programs they operate at a loss, and pushed back on the narrative that hospitals—or at least, smaller nonprofits like theirs—are extracting funds from the broader healthcare system.
“There may be enough money—it’s just not going to the nonprofit caregivers,” Minnesota Hospital Association President and CEO Rahul Koranne, M.D., said during the presser.
The association’s presser coincided with the release of a “Statewide Crisis of Care” report (PDF) incorporating statewide hospital data through 2024. It showed 28% of Minnesota hospitals lost money delivering care in 2024 and 37% in 2023, while total care delivery costs increased 30% from 2019 through 2024.
(Minnesota Hospital Association)
Health system leaders said the situation has worsened since the end of that dataset. Rachelle Schultz, CEO of Winona Health System, said her system’s care delivery costs rose more than 12% over the past four years but would have climbed “closer to 30%” without the organization’s annual expense reduction efforts. Some areas, like drug costs, still reached nearly 30%, which she and others said reflected “some of the most profitable companies of any industry in the world” dictating prices outside of their influence.
“Our expense reductions are immediately wiped out by the cost increases in key areas by many of those suppliers, big pharma, drug costs, medical supplies, technology and so forth,” she said. “The for-profit companies that sell to us make their high margins, and we have to absorb their cost increases, ultimately negatively impacting our communities.”
The association’s report highlighted data showing that 48 of Minnesota’s 98 rural hospitals, less than half, were still delivering babies in 2024. Such service line closures were a frequent talking point for the hospital leaders.
“In the last five years we have lost senior services, home care, hospice and cardiology. We have had to pause labor and delivery services,” Rick Breuer, CEO of Community Memorial Hospital in Cloquet, Minnesota, said. “These decisions were not made lightly, and they have taken place only after attempts to reduce costs, research alternative care models or otherwise find a path to sustainability for the service.
“This isn’t just a Cloquet story, not at all. It’s happening in every corner of Minnesota,” a visibly emotional Breuer continued. “Each [rural service closure] results in a longer drive for someone. By the time the hospital closes, it’s already too late and a lot of other wounds have been inflicted along the way. The losses come first, one at a time, and that care never comes back.”
Beyond their persistent operating losses, the association and hospital leaders said federal policy changes have made their concerns more urgent. Hospitals this year have generally been fielding more uninsured patients amid coverage eligibility changes and reduced premium subsidies, and beginning in 2027, state Medicaid programs will begin seeing a gradual reduction in federal funding typically passed to hospitals as supplemental payments.
“H.R. 1 does not tighten the screw. It removes the machinery that held hospital finance together, and it does so on a statutory clock that has already started running,” the association’s report reads.
“Instead of H.R. 1, I’m going to call it H1R1 because it’s going to be like a pandemic when it hits, I think, in all of Minnesota and probably nationwide,” Rick Ash, CEO of United Hospital District, said during the press conference. “When … the number of poor and elderly folks that we care for … [are] not going to be able to pay their bill, we’re still going to care for them. Those costs have to be covered somewhere, and we’re not sure how that’s going to work right now.”
The hospital execs collectively outlined competing sectors as holding blame, though Minnesota Hospital Association head Koranne was the most forceful in his condemnations.
He repeatedly described “profiteering pharmaceutical companies” pulling funds away from hospitals, urging the public and policymakers to “follow the money” in programs like 340B that he said don’t always reach nonprofit providers.
Similarly, he denounced “unfunded mandates” that have mounted from pharmaceutical companies and commercial insurers that require additional administrative documentation from hospitals in order to receive discounts or payments. For the latter, he pointed to 2023 national industry data that showed nearly $18 billion was spent by providers overturning payers’ initial claims denials.
Shultz concurred, noting that the higher rates paid by government to commercial Medicaid and Medicare Advantage plans are structurally at odds with the higher rates of coverage denials or “complicated” prior authorization hurdles hospitals face when caring for those patients.
“When we look at the Medicare Advantage plans pulling out of so many counties across the state, and Humana pulling out entirely across the state, if they don’t make money on them, they leave. What would we do if we didn’t make money on something and decided that we were going to leave?” Schultz mused. “There are just some very twisted sort of incentives in all of this that are simply not lined with what the care delivery system is.”
The hospital association’s suggested fixes, per Koranne, are a flurry of state and federal lawmaker interventions in the wake of upcoming midterms. He called on candidates “on the first hour of the first day after you’re elected” to block proposed changes to the 340B program that would financially harm hospitals, increase Medicaid financing that currently comes in below the cost of care delivery and to limit insurers’ use of care utilization processes.
“No cuts, no more unfunded mandates,” he said. “Make sure that there is nothing getting between a clinician and a patient.”
The state association’s alarm bells came a week after the hospital industry’s national lobby, the American Hospital Association, released its own report describing financial risks facing rural hospitals at large. That report described more than 40% of rural hospitals nationwide operating at financial losses, and similarly outlined obstetric service shutdowns and the impending impacts of federal policy.
“The pressures on rural providers are only intensifying and the warning signs have become impossible to ignore,” American Hospital Association President and CEO Steve Walsh said of the report. “Through urgent and collaborative policy action, we can protect patients in rural communities and ensure they continue to get the care they need close to home, when and where they need it most.”