Item Description:
title
County Board governance of Hennepin Healthcare System, Inc.
end
WHEREAS:
body
WHEREAS, Hennepin Healthcare System, Inc. (HHS), is an integrated system of care that serves as a critically important safety net and teaching hospital for residents of Hennepin County and the State of Minnesota; with a nationally recognized Level I Adult and Pediatric Trauma Center; an acute care hospital; a clinic system; an outpatient Clinic & Specialty Center; an Emergency Medical Services fleet; and more; and
WHEREAS, prior to 2007, the Hennepin County Medical Center operated as a department of Hennepin County, under the direct control and oversight of the County Board; and
WHEREAS, in 2005, the Legislature enacted enabling legislation to create HHS as a public corporation and subsidiary of Hennepin County;
WHEREAS, since January 1, 2007, HHS has operated as a public corporation and a subsidiary of Hennepin County; and
WHEREAS, the County Board strives to promote the continued vitality of HHS and the high-quality health care services provided by its work force; and
WHEREAS, the County Board recognizes the nation-leading work of the HHS’s providers and staff and strives to support them in providing excellent patient care; and
WHEREAS, the County Board supports the mission of HHS and recognizes the importance of this critical health care asset to the residents of Hennepin County, the State of Minnesota, and beyond;
WHEREAS, the County Board is committed to proactive, responsible stewardship of public resources for both HHS's healthcare functions and the County’s other critically important work in health, human services, housing, justice, and more; and
WHEREAS, under Minnesota Statutes section 383B.908, the County Board retains several reserved powers relating to HHS, including specific controls over HHS’s “mission, ability to incur indebtedness through the county, indigent care, and governance,” as well as the right of the County Board to “dissolve the corporation, reorganize the corporation, or remove the entire corporate board in order to resume management of Hennepin County Medical Center upon a two-thirds vote of the entire county board”; and
WHEREAS, HHS has experienced an operating net loss for seven of the past eight years, despite receiving significant government support, including federal pandemic funds in 2020 and 2021 (totaling approximately $61.5 million); directed payments beginning in 2022 (totaling at least $90 million per year in supplemental funding for Medicaid); additional one-time funding from the County in 2024 (totaling approximately $4.2 million for employee benefits and $4.8 million for IT costs); and an increase in uncompensated care funding from the County (from $26 million in 2022 to $37.5 million in 2023, $38 million in 2024, and $38 million budgeted in 2025); and
WHEREAS, HHS’s financial condition has continued to deteriorate at an unsustainable pace, despite HHS’s ongoing efforts to implement margin improvement initiatives over a course of several years; and
WHEREAS, in its current financial state, HHS has been unable to self-fund its routine capital medical equipment expenditures in recent years, and recently requested a loan of up to $30 million from the county; and
WHEREAS, HHS has proposed future campus redevelopment but is unlikely to be able to fund any share of such redevelopment; and
WHEREAS, based on its current financial condition and recent budget forecasts, HHS will not meet its proposed 2025 operating budget and must take immediate action to improve its performance, address its current cost structure, and mitigate a significant operating net loss for this calendar year; and
WHEREAS, in a joint meeting of the County Board and HHS board on June 12, 2025, HHS leadership informed the County Board of significant concerns about HHS’s financial condition and long-term viability, including risk of HHS closure in the near future; and
WHEREAS, on the same date of June 12, 2025, the HHS board voted to create a Task Force of its own members to consider the strategic sustainability of HHS and to explore a full range of scenarios; and
WHEREAS, the HHS Task Force has met in person five times (June 27, July 1, July 11, July 18, and July 23) and another meeting planned for August 1, for the purpose of developing cost-saving recommendations regarding the 2026 HHS Budget proposal, to present at the HHS Board meeting on August 6; and
WHEREAS, the 2025 County Board calendar was approved in December 2024, including two joint meetings of the County Board and HHS Board, and four Quarterly Briefing dates, with August 7 being the scheduled date for HHS Board and Leadership to present the 2026 HHS Budget proposal to the County Board; and
WHEREAS, the Quarterly Briefing scheduled for August 7 has since been converted to a joint meeting of the County Board and HHS Board; and
WHEREAS, HHS is a public safety net hospital, serving a high percentage of patients on federal and state programs and providing a significant amount of under- and uncompensated care, and the circumstances around HHS’s financial condition have grown even more precarious and urgent in recent weeks due to recent federal legislation and anticipated state and federal funding reductions; and
WHEREAS, HHS faces a real risk of financial failure, which would have a devastating impact on health care access for Hennepin County residents and regional and statewide health systems; and
WHEREAS, the County faces a real risk of financial impacts, including a need to increase the property tax levy, if further financial support from the County is requested or required to sustain HHS, especially given current uncertainty regarding state and federal funding streams, and given the County’s need to sustain funding for current County operations and services; and
WHEREAS, the HHS task force and board have been working diligently to prepare and propose a recommended 2026 budget for the County Board’s review and approval under Minnesota Statutes section 383B.908; and
WHEREAS, in order to exercise its statutory oversight powers in an effective, informed and fiscally responsible manner, the County Board intends to be actively involved in decision making regarding HHS’s current financial crisis, implementing any turnaround strategies, and developing a long-term vision for HHS’s viability and vitality, in order to take into account what is needed to support core HHS functions as well as core County functions, without unreasonable burdens on county residents and taxpayers
Resolution:
BE IT RESOLVED, pursuant to Minn. Stat. 383B.908, subd. 7, the County Board hereby removes the entire corporate board of Hennepin Healthcare System, Inc., in order to resume interim management of its subsidiary corporation HHS, including the Hennepin County Medical Center; and
BE IT FURTHER RESOLVED, the County Board affirms the subsidiary corporate structure of HHS, and remains committed to working with HHS leadership and staff during this transition to ensure operational continuity and to develop and implement a strategy that brings financial stability to the health care system, ensuring that residents across Hennepin County and the State of Minnesota can continue to access high-quality health care services; and
BE IT FURTHER RESOLVED, that the County Board recognizes the dedication and hard work of HHS employees at all levels and vocations, and their importance to delivering healthcare services to Minnesota residents; and
BE IT FURTHER RESOLVED, the County Board expresses appreciation for the time, service and dedication of HHS board members; and
BE IT FURTHER RESOLVED, the County Board directs the County Administrator to prepare recommendations regarding any necessary transition plan, including a transition team, any needed staff or consultants, communications plan, meeting dates through 2025, as well as any other recommendations; and
BE IT FURTHER RESOLVED, the County Board will hold a special meeting to discuss business related to HHS with the County Administrator and the HHS CEO along with any other invited County or HHS staff, including members of the HHS executive leadership team or the proposed transition team, on August 12, 2025, and will consider a motion to close the meeting to the public under Minnesota Statutes 383B.217, subd. 7 and 383B.917.
end
Background:
If approved by a super-majority, this county board action will remove the HHS corporate board. This action does not unwind the current parent-subsidiary corporate structure. Hennepin Healthcare System, Inc., will continue to exist as a public corporation and as a subsidiary of Hennepin County. There is no immediate change to HHS’s corporate status and no disruption to HHS’s existing contractual and financial obligations (including HHS’s collective bargaining agreements).
By removing the HHS corporate board, the County Board will step into the role of the governing board, and this means the County Board will resume management of HHS, including HCMC. This county board action makes no other changes to the management or organizational structure of HHS, and so - subject to future actions by the county board - the current structure of HHS will otherwise remain in place, with the HHS CEO reporting to the county board as the governing body of HHS.
By resuming management of HHS, the County Board will take a more direct oversight role on HHS’s management and operations, including any financial turnaround strategy. The County Board will also have more direct access to information that may be needed to assess any request or need for County financial support, as well as more direct control regarding financial priorities and expenditures.
By exercising this reserved power (rather than its reserved powers to dissolve or reorganize HHS), the County Board can be more actively engaged in the short term, while addressing the current financial crisis. Once HHS is stabilized, the County Board can consider other options for the future governance or structure of HHS.
As historical background, the Hennepin County Medical Center previously operated as a department of Hennepin County, with the head of the hospital reporting up through the County organizational structure and ultimately to the County Board. In 2003, the County Board began evaluating whether a different governance structure could maximize HCMC’s operations, preserve its long-term financial viability, and preserve its public mission, with assistance from a Governance Task Force (Resolution 03-4-132R1), and then a Transition Committee (Resolution 04-6-293R2).
In 2003, the County Board's Governance Task Force recommended creation of a new, not-for-profit corporation with its own board, with an expectation that the corporation would be financially self-sustaining. The Governance Task Force further recommended that the County Board retain ownership of HCMC's assets as well as reserved powers to remove the corporate board and resume management.
In 2004, the County Board’s Transition Committee recommended that the County seek legislation to create a public benefit corporation as a subsidiary of the County, with an expectation that the corporation would achieve a sustainable positive operating margin within five years and be able to finance its own capital expenditures, with a culture of quality, performance, and accountability. The Transition Committee further recommended that the County Board would continue to decide important public policy matters and critical financial decisions relating to the health system, and similar to the Governance Task Force, the Transition Committee recommended that the County Board retain reserved powers to remove the corporate board and resume control.
In 2004 (Resolution 04-12-680 R1), the County Board voted to adopt the report of the Transition Committee, and to authorize county staff to seek legislation to implement the findings. In 2005, the Minnesota Legislature enacted enabling legislation for the creation of Hennepin Healthcare System, Inc., including several reserved powers for the County Board, and specifically including this reserved power to remove the corporate board and resume management.
Effective January 2007, HHS began to operate as a subsidiary public corporation of Hennepin County. Since 2007, the County Board has performed its statutory oversight role in the parent-subsidiary relationship in several ways:
• Conducting quarterly briefings with HHS to receive information regarding its mission, programs and initiatives, and financial condition, Minn. Stat. 383B.217
• Approving HHS’s annual budget, Minn. Stat. 383B.908, subd. 5
• Approving certain changes in HHS bylaws, Minn. Stat. 383B.906
• Appointing slates of candidates to the HHS board, Minn. Stat. 383B.903, subd. 3
• Appointing 2 county commissioners to serve as HHS board members, Minn. Stat. 383B.903, subd. 1
• Approving HHS’s health services plan, including HHS’s coordination with the County on providing health-related services to county residents, Minn. Stat. 383B.918
• Conducting an independent audit of HHS’s finances, Minn. Stat. 383B.908, subd. 5
• Holding the lease on real property used by HHS, Minn. Stat. 383B.913
• Issuing bonds to finance capital improvements to property used by HHS, Minn. Stat. 383B.916
• Providing HHS with the opportunity to participate in cooperative purchasing, Minn. Stat. 383B.921, subd. 2
• Providing HHS with legal counsel, Minn. Stat. 383B.922
• Providing HHS with the opportunity to participate in the County’s self-insurance programs, Minn. Stat. 383B.923
• Paying for health care and related services to county residents, Minn. Stat. 383B.928
As noted above, HHS has experienced recurring operating losses in recent years. Since late 2023, the County Board has taken several additional actions to better understand current trends and challenges at HHS relating to its management, operations and finances. The County Board retained a consultant to conduct an independent financial analysis and review, developed a new HHS financial dashboard for County Board briefings, increased the number of County Board briefings on HHS, and appointed an additional county commissioner to serve on the HHS board’s finance committee. These actions provided the County Board with more information about HHS’s challenges, but the financial trends have not improved.
This proposed action is the next step to deepen the County Board’s involvement in critical decisions at its subsidiary health system, given its current crisis and the potential impact on both the hospital and the county as a whole.
recommendation
Recommendation from County Administrator: Recommend Approval