Do Safety Net Hospitals Need A Safety Net?

 

 

This is about the current financial crisis at Hennepin County Medical Center (HCMC).  It is one of the flagship medical centers in the State of Minnesota.  It provides unique care that is not available anywhere else. It was the first place I interviewed at for a residency position out of medical school back in 1981. The first person I talked with was the (now late) Mark Mahowald, MD.  Dr. Mahowald was a world-famous sleep researcher and long-time head of the Hennepin Healthcare Sleep Disorder Center.  He has over a hundred publications on sleep and its implications.  He and his colleagues also trained physicians from several other disciplines in sleep medicine in their fellowship program.  That clinic is being shut down because of budgetary problems at the hospital.

After getting selected into the program at the University of Minnesota – half of my residency class (n=8) went to St. Paul-Ramey Medical Center (SPRMC) and the other half went to HCMC for the rotating internship year.  In those days both were designated as county hospitals.  That meant they were subsidized to some extent by the counties where they were located and mandated to treat anybody that showed up at their door whether they had health insurance or not.  When you have that kind of mandate you develop services that nobody else has, because you are the provider of last resort. You also develop expertise in treating people with the most severe problems largely because that is a group defined by social determinants including whether they have healthcare insurance.

Both hospitals are Level 1 Trauma Centers.  Both hospitals have burn units.  Both hospitals have extensive Emergency Medicine services closely aligned with paramedics.  Behavioral emergencies are most likely brought to these hospitals adding to the psychiatric training. Both hospitals treat the most people who require involuntary psychiatric treatment in the state.  The specialist physicians in both places are excellent clinicians and teachers.

After I completed my training – I went back and became staff at SPRMC.  I enjoyed working at a county hospital.  Reimbursement was not great, but I liked seeing people with the most severe problems.  I liked close relationship with consultants in every department and the fact that we had a certain esprit de corps.  We were all squarely focused on providing the best possible care to people whether they could afford it.

SPRMC and HCMC were on parallel courses until the 1990s.  At that point the physician group affiliated with SPRMC decided to cede control of the hospital to HealthPartners – a managed care company in 1993. Prior to that the facility had been public since its 1872 founding as the City and County Hospital, later becoming Ancker Hospital (1923) and St. Paul-Ramsey (1965).  The rationale for the merger was that SPRMC was in a market saturated with hospital beds and it assured access to an increased number of patients needing hospital beds.  It also provided access to the specialty physicians of Ramsey Clinic the associated medical group.

In the meantime, Hennepin County Medical Center remained a county hospital.  The county owns the land, physical plant, and assets.  In August 2025, the Hennepin County Board took control of the hospital from a volunteer board – The Hennepin Healthcare System that had managed the hospital since 2007.

In February 2026, the county board warned that the hospital could close as soon as May of 2026 if solutions to a funding crisis could not be found.  Repurposing a 0.15% sales tax was proposed as well as staff and programming cuts.  The tax was originally in place to pay off financing for Target field and that should happen in the next year.  Increasing the sales tax to 1% at that point will provide $280-$341M in annual funding.  Since 40% of HCMC patients come from outside of Hennepin County this was thought to be fairer than increasing the property taxes for residents of the county.

In researching this article, I found a document on a Minnesota State web site entitled Minnesota Hospital Uncompensated Care and Its Components, 2013 to 2023. The range of uncompensated care for HCMC during that time frame was $37.5M in 2013 to $64.2M in 2023.  The highest year in the range were $81.5M in 2022 in and $65.3M in 2021.  Total uncompensated care for the entire time was $453M.  There are estimates in various documents that the uncompensated care could reach as high as $200M/year.

The uncompensated care figures can be put into perspective in several ways.  First – these numbers are the largest of any hospital in Minnesota including some with a larger bed capacity.   Second – they have become progressively larger over the years compared to many of the other 131 hospitals that have relatively flat uncompensated care totals.  Relative to the 2025 HCMC operating budget of $1.57B, the uncompensated health care for that year was is estimated at over $100M or about 6%.  There are estimates this figure will stay at $100M/year and an addition loss of $1.7B in Medicaid Revenue over the next decade.

In the short term, significant cost cutting measures have been put in place. They include shutting down 100 beds (461 to 361).  There have been staff layoffs with 100 positions eliminated.  Several programs including Sleep Medicine, acupuncture, and chiropractic care have been eliminated.  The geriatrics program has been incorporated into primary care.  Retirement fund contributions for employees have been frozen. 

But the real crisis at HCMC is that they are not being compensated for the services they provide.  It is a crisis of the American healthcare system rather than of just one hospital.  It is continually misunderstood and mismanaged at the political and business level. There is a general lack of awareness over the past 40 years that American healthcare has been taken over by business entities.  The disappearance of county hospitals like SPRMC was one of the first signs. As a physician, the other signs included the disappearance of staff who assisted with all the paperwork and a new billing and coding system that depended on that paperwork.  In my case that was three fulltime people.  The billing system was relative value units or RVUs that could be assigned a multiplier to determine what reimbursement might be.  RVUs were tied to the billing document that was structured to contain a certain number of bullet points necessary to qualify for that RVU.  It was an easy formula to ration reimbursement – just reduce the multiplier or deny the care all together.

All that sounds boring and technical.  It was based on trying to quantify a purely subjective system.  To cite one example, from my experience in 2 successive years of billing and coding audits I went from the top ranked physician (a dubious honor) to the lowest rank without making any changes in how I recorded the notes. The only thing that changed was the judgment of the people doing the ratings. To make matters much worse, physicians learned that we were now legally responsible for any errors and that in the worst case we could be held liable for wire fraud under RICO statutes if an erroneous bill went out in the mail.  Before 911 - there were FBI raids of physician offices looking for these errors. 

When I look at the independent auditors’ data available for HCMC for 2024 – it seems like there is a straightforward loss of $40M (net operating revenue – net operating expense).  At the same time care patterns (average length of stay and average daily census) were flat.  Case mix acuity was slightly higher and the auditors’ comment that there are often no good discharge scenarios for the patients.  Discharges were higher (17,090 compared with 16, 502 the previous year).  Work RVUs (WRVUs) were 5.2 % higher.   These WRVUs are reflected in a gross patient charge figure of $3.66B.  From that figure there is a $2.1B deduction based on rate discounts with various providers and a slight add back for government subsidies that leaves a net patient service revenue of $1.337B.  Patient services are discounted by about 60% due to the way governments and insurance companies operate. 

If it seems like that is a steep discount for quality services – it is. And that discount is not evenly distributed across services. The best example is the mental health (or behavioral health) carve out.  That means that a managed care company manages mental health problems through separate system that typically reduces reimbursement to physicians by an additional 20% relative to medical surgical providers.  Medicaid carve outs typically pay 20-30% less than Medicare. The managed care system can also simply deny care (and payment) to anyone admitted to a hospital based on their subjective review of the hospital record.  In any individual patient the range for discounting services can be anywhere from 60 to 100%. 

How did the USA arrive at such an irrationally financed system of health care?  The short answer is that it was a government facilitated transfer to for profit businesses.  When I say government facilitated – I mean all the regulations I have talked about so far and more make it easy for health care companies to make huge profits.  They have taken very locally managed businesses focused on service and quality and built large networks focused on profit and shareholder wealth.  In the political landscape this has been facilitated by a party that uses the physician-patient relationship to leverage an underlying agenda of dictating and in some cases criminalizing healthcare available to women and accusing people with no healthcare of being lazy. The problem they say is that people are not working even though most workers can not afford health care premiums especially due to the current administration. 

There are obvious solutions that American politics ignores.  Here is one that is truly cost saving, covers everybody, and provides at least the same level of high-tech healthcare as the current system while saving a trillion dollars a year.  But don’t expect it anytime soon.  Despite all the talk abut the high cost of healthcare – the real rationale behind this system is shifting money to the people at the top – businesses, CEOs, and investment funds.   The people operating this system have no interest in universal coverage or quality care.  They see a large pool of premiums and government subsidies and are focused on how to get as much of it as possible.  There is not an easier path than denying care to patients and steep discounts to hospitals and physicians.

That is the real crisis for HCMC.  They are the safety-net hospital for all those people that commercial and government insurers will not cover. They take more government discounted payers than anybody else and even then, have difficulty enrolling the uninsured in those programs.  They provide a massive level of high-quality service to these folks.  They have 239 trainees in 20 different disciplines including 29 residents in psychiatry.  Time to stop pretending that this crisis is not the result of an irrational system and start funding HCMC like it would be funded in a rational system of care.  

Like Switzerland for example…

 

George Dawson, MD, DFAPA

 

References:

1:  Hennepin Healthcare Financial Reports (2022, 2023, 2024):  https://hennepinhealthcare.org/about-hennepin-healthcare/financial-reports

2:  Hennepin County 2025 Operating Budget:  https://www.hennepincounty.gov/-/media/hennepinus/your-government/budget-finance/documents/2025-operating-budget-book.pdf

Supplementary 1:  The Swiss have roughly three times the number of psychiatric beds per 100K compared to the US.  Just another sign that the US system is rationed to make money for the people at the top (see bar graph):  https://real-psychiatry.blogspot.com/2018/07/governments-and-psychiatric-beds.html

Graphics Credit:

Hennepin County Medical Center - Minneapolis, MN taken on 25 August 2013.

Author:  Gabriel Vanslette

License:  CC BY 3.0 Attribution 3.0 Unported