Minnesota Hospital Association


April 01, 2021

Decline in operating margin signals financially fragile hospitals, health systems in Minnesota

ST. PAUL – The Minnesota Hospital Association (MHA) today released its annual report examining the financial health of Minnesota’s hospitals and health systems.

Minnesota hospitals’ operating margins declined in 2019. Between 2014 and 2018, the trend of overall median hospital and health system operating margin in Minnesota remained steady at just over 2%. In 2018, however, the median operating margin declined to 1.7% and fell yet again in 2019 to 1.4% – a signal that Minnesota's hospitals and health systems are experiencing challenges including declining reimbursements from both government and commercial payers; health care professional shortages that bring higher staffing costs; and increasing costs of products and supplies such as pharmaceuticals, devices and technology systems for electronic health records.

The report examines publicly available fiscal year (FY) 2019 data – the most recent available – that hospitals and health systems are required to submit to the Minnesota Department of Health (MDH) each year. The operating margin is a measure of an organization’s revenues compared with its expenses related to patient care services and activities

“This year-over-year declining trend line of median operating margin signals a financially fragile health system in Minnesota, even before the additional significant challenges presented by the global pandemic in 2020,” said Dr. Rahul Koranne, president and CEO, MHA. “A positive operating margin is necessary to ensure hospitals’ and health systems’ ongoing ability to serve patients in their community, to maintain strong credit ratings and affordable access to capital, and to recruit and retain the highly educated and skilled workforce necessary to care for patients.”

While 45 of the 76 hospitals and health systems shown on the report generated positive operating margins in 2019, 31 hospitals, or 41% of the hospitals and health systems reflected in the report, experienced negative operating margins. The number of hospitals reporting negative margins has grown over the last two years. In 2017, 26 hospitals reported negative margins; in 2018, 27 hospitals reported negative margins.

Historically Minnesota’s urban hospitals have had higher margins than rural hospitals; however, the trend in recent years has been convergence, with both urban and rural hospitals and health systems showing declines since 2017. The median operating margins for urban and rural hospitals and health systems were the same in 2019 at 1.4%.

Data collected for the report precedes the COVID-19 pandemic, which caused substantial financial instability, though hospitals and health systems saw some positive mitigation from state and federal funding responses. MHA expects next year’s financial health report to encompass the impacts of the pandemic on hospitals’ and health systems’ financial health during FY 2020.

Read the full report.

The Minnesota Hospital Association represents Minnesota’s hospitals and health systems, which provide quality care for their patients and meet the needs of their communities. 

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