Minnesota lawmakers are wrestling with how to sustain the state’s financially distressed hospitals while patients confront growing medical debt.
One Minnesota lawmaker wants to steer money from an existing healthcare tax back to hospitals so they can expand their charity care programs for patients who can’t afford their bills.
The proposal follows a Minnesota Star Tribune-KFF Health News investigation that found hospitals across the state spend far less on charity care than hospitals in many other states, and use widely different standards to decide who qualifies for free or discounted care.
State Rep. Steve Elkins said helping hospitals with their own tax contributions makes sense as more Minnesotans are losing health insurance.
“Hospitals are providing a fair amount of charity care, but they kind of have an obligation to do something more than they are doing,” said Elkins, who introduced legislation May 13, in the final days of the legislative session.
Elkins noted recent reports by the Lown Institute and Minnesota’s legislative auditor indicating some hospitals are gaining more in nonprofit tax benefits than they are spending on community benefits, including charity care.
Simply demanding more from hospitals isn’t necessarily the answer, though, Elkins said. Newly released financial data shows 31 Minnesota hospitals meet the state’s definition of financial distress because they lost money on operations in four of the last eight years.
Hennepin County Medical Center in Minneapolis appears poised for a $205 million state bailout this year to prevent the urban trauma center from closing.
HCMC provided the most charity care of any Minnesota hospital in 2024, an estimated $88 million, which consumed more than 3% of its operating budget. Elkins said he suspects some charity care patients from other hospitals are being diverted to HCMC, which has a process for automatically screening patients for financial needs upon admission.
Incentivizing hospitals to be more generous could take pressure off HCMC, Elkins said. The state gains about $250 million per year from a 1.56% tax on hospital patient revenue, which roughly equates to the $241 million that hospitals spent on charity care in 2024, according to estimates by the Minnesota Department of Health.
“You could pretty much make every Minnesota hospital whole with all of the charity care they’re providing,” he said.
A lack of state standards allows some hospitals to limit free care to people making less than $15,000, while others offer care to people living alone who make as much as $47,000. Being stingy with charity care can be self-defeating for hospitals, which end up wasting money in debt collection efforts from patients who couldn’t afford their bills in the first place, said Eli Rushbanks, director of policy advocacy for Dollar For, a nonprofit that helps U.S. patients apply for charity care.
“It’s not really a question of whether they are doing better than other states. It’s a question of whether they are doing enough” for Minnesota’s patient population, he said. “Minnesota has charity care-eligible patients who are not receiving charity care.”
Some state-by-state disparities in charity care are beyond the control of hospitals, and even signal positive trends. Lower rates of chronic disease mean Minnesotans need less healthcare in the first place. Higher levels of insurance coverage mean they don’t need charity care as much to afford their healthcare.
Elkins’ idea of taking money from hospitals and giving it back with strings seemed unnecessary to leaders of the Minnesota Hospital Association, which would prefer to see the tax disappear.
Joe Schindler, the association’s vice president for finance policy, said one alternative would be moving the money into the Medicaid health insurance program for people with low incomes or disabilities. He said that would unlock more federal matching dollars to benefit patients and help close the reimbursement gap in that program.
Hospital systems have discretion to decide the income and financial thresholds by which patients qualify for financial assistance in the form of free care or partial discounts. Elkins’ proposal wouldn’t change that, but other state leaders and advocates have proposed models that standardize how charity care is offered.
Dollar For recommends policies that at least provide discounts to households with incomes around 400% of the federal poverty level, because there are fewer bad debt cases and lawsuits involving patients with incomes above that level, Rushbanks said. The Star Tribune-KFF Health News analysis of 123 Minnesota nonprofit or government-run general hospitals showed 52 provide discounts to patients with household incomes at 350% or higher, but the rest fall below that level.
After investigating irregularities in charity care at Mayo Clinic last year, Minnesota Attorney General Keith Ellison recommended that the state set a minimum floor for charity care eligibility across all hospitals. He also recommended all hospitals adopt presumptive eligibility systems that assume patients need financial help until proven otherwise.
This week’s article “makes it clear there is more work in front of us, and I will continue to use the power of my office to help Minnesotans get the medical care they need, no matter what’s in their bank accounts,” Ellison said in a statement.
Charity care is only one category of community benefits reported by hospitals for which they don’t receive direct payment. Other examples include providing medical education services for training doctors and nurses, and maintaining money-losing services such as obstetrics or emergency care in rural and underserved communities.
Whether hospitals gain more in nonprofit tax savings than they spend on community benefits depends on what’s included in the state auditor’s analysis. Hospitals are chronically underpaid for the cost of medical care by Medicaid, and the state hospital association reports that as a community benefit.
The legislative audit found that only 28 Minnesota hospitals spent less on community benefits than they saved in taxes in 2023, when that underpayment was part of the total. When excluded along with other research and education expenses, 62 hospitals spent less on the remaining community benefits than they gained in tax benefits as nonprofits.
Elkins said his idea to redistribute tax revenue could motivate hospitals to spend more on charity care or other community benefits. The state also could recruit more doctors, he said, if Minnesota hospitals increased residency slots for required on-the-job training after medical school.
The idea is an easier sell right now, given Minnesota’s budget surplus, he acknowledged, but could create challenges in future years when lawmakers would have to find ways to replace the lost revenue for other state needs. The lawmaker said he intends to bring it up next year if it doesn’t make it into the state’s health budget this session.
