OPERATING MARGINS FALL FOR A THIRD CONSECUTIVE YEAR, ADDING PRESSURE TO STATEWIDE SYSTEM OF CARE
April 19, 2022, Saint Paul, Minn.– The Minnesota Hospital Association (MHA) released its annual report today examining the financial health of Minnesota’s hospitals and health systems. The report analyzes audited fiscal year (FY) 2020 financial data – the most recent available – for hospitals and health systems.
Operating margins for Minnesota hospitals and health systems sharply declined in 2020, with 33 hospitals and health systems reporting financial losses for the year. The median operating margin in 2020 plummeted to a razor thin 1.2%. Hospital and health system operating margins were already faltering prior to 2020 however, the effects of the pandemic accelerated that declining trend and are predicted to last for many years to come.
2020 was a challenging year for many Minnesotans, and because hospitals and health systems are often the lifelines for their local communities, they shouldered an increased role of responsibility. The additional and unexpected need to pause or cancel non-COVID-19 services to increase care capacity due to COVID-19 strain resulted in dire financial results.
Without the short-term federal and state financial relief, 2020 could have meant extreme hospital and health system distress, right when the community needed them most. Yet, more urgent relief is necessary as the pandemic is proving to have lasting financial impacts on hospitals and health systems in the state.
“Hospitals and health systems have proven time and again that they will be there when Minnesotans need them. That is our mission,” said MHA President and CEO Dr. Rahul Koranne. “However, an increasingly unsustainable financial model is resulting in increased financial pressure that calls into question the viability of our statewide care system. As we are hopefully entering a new pandemic stage, Minnesota’s hospitals and health systems urgently need policymakers and community leaders to continue stepping up to ensure that Minnesotans will always have access to the right care at the right time across all parts of the state.”
The MHA report indicates four main factors in the decreasing financial health of our hospitals and health systems in 2020:
- The pandemic exacerbated the already declining median operating margins for Minnesota hospitals and health systems to a mere 1.2% in 2020.
- Without federal and state COVID-19 financial intervention, most Minnesota hospitals and health systems would have been operating in the red.
- Most COVID-19 patients were on a government sponsored health programs that compensate hospitals and health systems significantly below the actual cost of care; and
- A worsening workforce shortage dramatically increased staffing costs.
The report also outlines that not-for-profit hospital and health system leaders across Minnesota are confronted with grim financial realities that will not be easy to solve – flat revenues and escalating expenses beyond their control. On the revenue side, over half of the revenue sources are from Medicare and Medicaid reimbursement mechanisms that are set through regulations and generally pay below the cost of care. The other payer sources, i.e., commercial insurance contracts, have negotiated limits that constrain revenue growth. On the expense side, increasing workforce costs and double-digit inflation for most supplies and services create skyrocketing expenses that are difficult to overcome given the revenue constraints.
A positive operating margin is necessary to ensure hospitals’ and health systems’ ability to serve patients, continue as the lifeline of a community, and attract and retain a skilled workforce. Data collected in this report predates multiple additional COVID-19 surges and increasing stress on the system.
Read the full report.