North Memorial Health has become the third Hennepin County health system to cut jobs in less than a year.

In a Thursday interview, North Memorial CEO Trevor Sawallish said that his organization is cutting 103 jobs and axing outpatient mental health services at its Robbinsdale hospital in the face of ongoing financial challenges. The health system is also closing down its neonatal care unit at the same hospital, though its nursery will continue to handle standard deliveries.

The job cuts amount to a less than 1% reduction across North Memorial’s entire headcount.

Sawallish cited low reimbursement rates from government-sponsored health programs like Medicaid and Medicare among the reasons for North Memorial’s struggles. At its flagship Robbinsdale hospital, roughly 75% of patients are on government insurance plans, he noted.

But Sawallish is cautious not to pin blame on the patients themselves. Rather, he believes it’s a result of flaws in government reimbursement programs.

“We truly do see each patient we care for as a privilege,” Sawallish told TCB. “It doesn’t matter what insurance card they have. It doesn’t matter if they have insurance. … That’s part of the DNA of this place. This is not about the patients. This is about our economics in being able to provide exceptional care.”

Sawallish said that government programs have not kept pace with increasing health care costs. He described it as an “unsustainable trend.” Leaders at the Minnesota Hospital association – a trade group for the state’s health systems – have long been sounding the alarm about it, too.

Meanwhile, the Minnesota Nurses Association, a union representing about 22,000 nurses in the state, issued a statement on Wednesday that blamed “corporate greed” – not government reimbursement – for North Memorial’s decisions.

“These callous cuts will leave thousands of vulnerable Minnesotans at risk,” MNA officials said in the statement. “To blame patients who cannot pay more for the vital care they need only underscores the true interests and motivations of these executives: the bottom line and the highest-paying customers, like those at North Memorial’s wealthier suburban campus.”

Indeed, though North Memorial’s Robbinsdale hospital has a larger share of patients covered by Medicaid and Medicare, the health system’s Maple Grove campus had “the highest share of commercial insurance coverage of any hospital in Minnesota in 2022,” the Star Tribune’s Christopher Snowbeck reported on Wednesday, citing data from the state’s health department.

Sawallish said that, historically, there has been some “cross-subsidization” between North Memorial’s two hospitals, i.e., payments from commercial insurance programs helping to offset lower payments from government program. But he again said that government rates simply are not keeping up with cost.

“The percentage of government patients continue to go up, at not only Robbinsdale, but at Robbinsdale and Maple Grove, which then diminishes our opportunity for cross-subsidization,” he said.

MNA officials maintained that North Memorial’s recent changes fit into a pattern of closing services that “do not make enough money.”

“This pattern can be seen in the recent closures by Allina Health executives of pediatric inpatient beds at Mercy Hospital in Coon Rapids, adolescent mental health services at United hospital in St. Paul, and labor and delivery services at Cambridge Medical Center in Hastings,” they said.

In 2023, North Memorial reported a total loss of $8.5 million. The year before that, the health system had a loss of $12.8 million. To be sure, North Memorial isn’t the only Minnesota health system to report losses; Allina Health, which is a bit larger than North Memorial, had a loss of over $350 million last year.

Founded in 1954, North Memorial has always had a smaller footprint than its peers. The system has just those two hospitals. Allina, meanwhile, has a dozen, Fairview has 10, and HealthPartners has eight.

Yet, within the last year, Allina and Fairview have both initiated major layoffs all the same.

Sawallish, who became CEO last month after holding the title on an interim basis since August, said that North Memorial has long prided itself on operating as an independent health system. Yet financial realities are forcing a change, he said.

“We’re really working hard to make sure we are running as efficiently as possible,” he said. “We are looking for opportunities to continue to fund our own mission, but we’ve hit that point where we don’t think we can do that on our own.”

To that end, North Memorial is seeking legislative approval to enter Medicaid’s directed payment program, which would enable the system to draw down more federal funding if local partners also chip in more.

Still, North Memorial is also grappling with a recent decision by Hennepin County to cut a $24 million program to help struggling patients pay their bills. Sawallish said the county’s decision didn’t directly lead to the layoffs, but it did bring about “urgency to make some adjustments.”