Two Midwest hospitals illustrate importance of Medicaid, Medicare

The financial problems of two urban hospitals in the Midwest hit this month illustrate the importance of Medicare and Medicaid reimbursements to the hospital sector.

The for-profit Weiss Memorial Hospital in Chicago, which shuttered on Aug. 8, and county-owned Hennepin Healthcare in Minneapolis, which had its board dissolved by the Hennepin County board of commissioners on Aug. 12, face distinct challenges. 

Weiss blamed its closure on the recent decision by the Centers for Medicare and Medicaid Services to cut off Medicare reimbursements to the hospital. CMS wrote in an Aug. 9 public notice that the hospital had fallen out of compliance with federal regulations in its provision of nursing services, physical environment and emergency services.

Hennepin Healthcare, a public subsidiary corporation of the county, includes the county’s safety-net hospital, Hennepin County Medical Center, as well as clinics and specialty and outpatient centers. In an Aug. 12 press release, the county commission said the hospital was at risk of closing by the end of the year absent an intervention. 

But both organizations faced an impending crisis due to uncompensated care. Hennepin Healthcare’s financial crunch grew out of years of net operating losses and a $36 million deficit this year due to uncompensated care, Becker’s Hospital Review reported. And the majority of Weiss’s patients relied on Medicare, according to Becker’s.

In Chicago, the Weiss hospital’s most visible problem, according to published reports, was the failure of its air conditioning system, which led to its inpatients being evacuated to a suburban hospital owned by Weiss’s parent, Resilience Healthcare.

Resilience purchased both Weiss and West Suburban Medical Center in 2022 out of the bankruptcy proceedings of another for-profit operator, Pipeline Health.

But the Illinois Department of Public Health has been investigating suspected patient-care shortfalls at the hospital since 2024, and informed the Centers for Medicare & Medicaid Services, triggering the funding cutoff, published reports said.

New Jersey-based Resilience Healthcare did not respond to a request for comment. Illinois state Rep. Hoan Huynh, who represents the district where Weiss is based, did not respond to a request for comment by press time.

West Suburban Medical Center in Oak Park, Illinois, is now reportedly under duress, as well.

In Minnesota, the Hennepin County board of commissioners has dissolved Hennepin Healthcare’s 15-member board and taken on direct oversight of the county health system’s governance.

Joe Mathews, chief financial officer for the county, said by email that the county owns Hennepin Healthcare’s capital facilities.

The county has issued general obligation debt for the health system “to fund asset preservation and other capital projects as well as the construction of a new outpatient specialty center,” he said.

Hennepin Healthcare is paying the debt service on two outstanding series of bonds that funded the construction of the outpatient center. 

“The financial challenges facing HHS will have no impact on the County’s ability to repay its outstanding bonds,” Mathews said.

The health system benefited from the county’s triple-A credit ratings and GO pledge, Mathews noted.

Hennepin, with 1.3 million residents, draws rating strength from the “county’s role as an important contributor and a vital component” of the Twin Cities’ metropolitan region, Fitch Ratings wrote in 2024.

“The county is committed to ensuring the continued provision of high-quality healthcare services to residents,” Mathews said. “This is why Hennepin County is taking proactive steps to ensure the stability and continued operation of (Hennepin Healthcare) by assuming interim management. The county will implement a plan and layout steps to strengthen the financial stability (of Hennepin Healthcare).”

At Hennepin Healthcare, 45% of medical revenues are from Medicaid, according to a fact sheet, and 74% come from Minnesota public health care programs.

Hennepin Healthcare’s interim CEO, Tom Klemond, MD, said in an emailed statement that the organization’s goals are unchanged.

“Our governance has changed, but our mission to support the most vulnerable in our community remains the same,” he said. “We will work closely with our Hennepin County Board of Commissioners on a transition plan that best supports and preserves the vital work that we do, and centers patient care at every turn.”  

Mathews noted that across the U.S., other public safety-net hospitals are facing similar financial pressures. 

“Reimbursement rates and other challenges already exist, and some federal actions will most likely create added pressure,” he said.

In an Aug. 14 sector profile, Moody’s Ratings identified Medicare reimbursement denials as a key revenue challenge for nonprofit hospitals.

“Medicare as a percentage of gross revenues reached a five-year high, at a median 48.3%,” Moody’s said in the sector profile. “Medicare managed-care plans continued their multiyear growth, reaching a median 22.4%, up from 15.9% in 2020.” 

And S&P Global Ratings said in an Aug. 19 report that Medicaid spending reached $888 billion in 2023, taking up $1 of every $5 spent on healthcare in the U.S. S&P said nonprofit healthcare organizations that serve as safety-net providers and rely heavily on Medicaid will face the most credit pressure as a result of the Trump/GOP budget bill, which directs massive cuts to Medicaid.

As fewer patients have access to health insurance, fewer get routine care, and more are forced to seek out emergency room care, “hospitals could experience increased bad debt and charity care. This could pressure cash flows,” especially at safety net hospitals, S&P said.

KBRA noted in its rating methodology on the sector that some nonprofit hospitals serve as safety net hospitals, particularly when they’re located in financially disadvantaged service areas, and often “receive Medicare and Medicaid subsidies for treating a disproportionate share of uninsured and low-income populations.”

The rating agency said, “While the industry seeks to understand and transition to the new care and payment methodology, it also bears the burden of treating a population which is increasingly aging and with increasingly chronic conditions. With all of these competing pressures, management teams are in unchartered waters, and the divide between the high and low performers continues to widen.”

In its Aug. 5 not-for-profit hospitals medians report, Fitch Ratings flagged the sector’s improving response to labor challenges, but warned that in 2030, the last Baby Boomers will hit retirement age, and the oldest Baby Boomers will turn 85. 

With fewer people in the workforce to provide care, and the federal government continuing to run high deficits as net debt approaches 100% of GDP, Fitch said, “this has profound implications for economic growth, tax revenues and demands on governmental services, as well as on the available pool of and need for skilled labor in the healthcare sector.” 

The rating agency warned that the labor struggles the sector is only now starting to emerge from may repeat five years from now.