A report this month from the Minnesota Hospital Association makes clear exactly how challenging the business of running a hospital — especially in rural Minnesota — has become.
The median operating margin for hospitals and health care systems in the state fell by 29 percent in fiscal year 2016, according to the MHA report, from 2.4 percent in 2015 to 1.7 percent last year. And rural hospitals and health systems are operating even more on the razor edge, at 1.1 percent.
The number of acute-care hospitals operating in the red went up from 21 in 2015 to 28 last year, representing a striking percentage of hospitals that are losing ground. Two of those were in southeast Minnesota. St. Elizabeth’s Medical Center in Wabasha reported a minus-3.9 percent margin in fiscal 2016, and Winona Health Services was minus-2.2 percent. In Wabasha, the medical center’s chief financial officer said the red ink was related to higher costs, the need to raise salaries for long-term staff because of a tight labor market, and insurance reimbursement rates.
Those are familiar issues to anyone who’s been following the controversy in Albert Lea, with Mayo Clinic Health System’s plans to move inpatient hospital care from that medical center to Austin.
Southeast Minnesota was one of three regions in the state where margins generally did better, with Olmsted Medical Center showing a net margin of 11 percent, including nonpatient services. OMC expects this year’s margin to be closer to 3 percent. And Mayo’s net margin, including nonpatient income, was 4.7 percent.
But those are the big overall numbers. Mayo says its combined operations in Albert Lea and Austin lost $8 million last year and $4.6 million the year before, due in large part to the forces cited by St. Elizabeth’s in Wabasha and others.
“Rural hospitals tend to experience lower margins, on average, due to the smaller volumes of patients they treat and scope of services they provide,” the MHA report says. “Rural hospitals also cross-subsidize a larger portion of their total operations to support other nonhospital health care services their communities need, such as nursing homes, ambulances, free-standing clinics and home health care.”
Despite what Mayo’s critics in Albert Lea, fired up by union activists, would say, it’s not a fiction that hospitals in small cities and rural areas face major challenges that will require new approaches. It’s not a contrived financial crisis that health care giants are using as a way to get bigger and operate on the cheap.
“The operating environment for hospitals and health systems is getting tougher,” said Lawrence Massa, president and CEO of the hospital association. “We have to address it from a policy standpoint — both at the federal and state level — if we want to have a health care system that provides access to essential services everywhere in our state and country. We can’t take it for granted.”
John Wolfe, the CFO at St. Elizabeth’s in Wabasha, said that institution has “experienced financial volatility” for much of its 119-year history and has been able to weather it “in partnership with our generous community.”
It will take that partnership and more for medical centers in rural areas to adapt and thrive.