It’s not alone. Multiple hospitals across rural Minnesota are reporting that Medicare is incorrectly rejecting claims for patient care, exacerbating their financial challenges.
“We didn’t have a lot of cash to begin with, so it’s probably affecting us the most,” said Andy Knutson, chief executive for the Mille Lacs Health System in Onamia, where hospital administrators have cut their pay 10% to help keep the doors open.
The problem appears tied to a system put in place last year by President Donald Trump’s administration to reduce fraud and eliminate cases of double-billing by small hospitals and their affiliated doctors. The system isn’t recognizing doctors and other providers who are legitimately affiliated with the health system, so it is incorrectly rejecting bills that the health system files on their behalf, Knutson said.
The independent hospital and clinic provider is running out of options, because about 60% of its patients are funded by Medicare, the federal health program for people 65 and older. That means it is only receiving payment on average for 40 of the roughly 100 patients who come to Mille Lacs each weekday for clinical, urgent or emergency care, and only 20 of 50 physical therapy visits.
“It’s now been three full months without payments from Medicare,” he said, despite re-enrolling providers multiple times to try to get them federally recognized.
The problem is specific to critical access hospitals, which are limited in size to 25 inpatient beds and receive heightened payments from the federal government to maintain health care services in rural areas. Minnesota has the fourth-highest number of critical access hospitals, behind Texas, Kansas and Iowa, which has allowed it to maintain a broad network of inpatient care longer than many states.
A spokesperson for the Centers for Medicare and Medicaid services didn’t immediately respond to a request on Friday for comment. But on Monday, Knutson said he was notified that Medicare is deactivating two codes in its payment system that were responsible for most of the errors.
The timing couldn’t be worse for hospitals to be short of cash. About 31 hospitals, including Mille Lacs, already meet Minnesota’s definition for financial distress because they have lost money on operations in four of the last eight years.
Their situations worsened this year with the shutdown of UCare, a Minnesota health plan. Mille Lacs is owed $1 million from UCare for medical services already provided. Madelia Health System, a south-central Minnesota hospital, has also experienced the double-whammy of having claims rejected by Medicare and $1.3 million owed by Ucare.
Help is coming; the federal government pledged nearly $200 million in 2026 to Minnesota in the form of rural health transformation grants, some of which will go to hospitals to help them invest in new technologies and solutions to improve patient care.
However, hospital leaders said they will only be reimbursed after making the investments up front, which is a problem if they don’t have cash on hand.
Madelia is so broke it can’t afford to pay for its last 12 days of operations, and is relying on a line of credit from a local bank, said David Walz, Madelia’s chief executive.
Complaints to federal lawmakers and officials earlier this year helped restart payments from Medicare after they mysteriously halted, Walz said. “With Medicare, it’s really hard to figure out when they’re paying us and when they’re not.”
Mille Lacs leaders urged patients to seek care without hesitation from their clinic and hospital, which is the only source of inpatient care in a 40-mile radius. The hospital campus, renovated in 2023, also holds an important role for Minnesota’s mental health system as it operates one of the only inpatient geriatric psychiatry units in the state.
Payment was the least of Dr. Ryan Fox’s concerns Friday when he treated a stroke, admitted four patients to rehab beds, checked on two geriatric patients, then reviewed the needs of patients with COPD and heart failure.
“We’re going to care for them regardless of the ability to pay,” said Fox, Mille Lacs’ chief of staff.
But after months of problems with Medicare, Knutson and other leaders are considering every option if Mille Lacs runs out of money. Knutson said he has discussed obtaining a line of credit as well, but banks are concerned whether the hospital is ever going to get paid back.
The problem appears limited to hospitals that submit bills to Medicare for their facility fees along with the professional fees of their doctors and other providers. That could explain why Riverwood Health System in Aitkin is reporting a lack of payment from Medicare but Cook Hospital in northern Minnesota is not. Cook’s providers submit claims separately for their professional fees.
Minnesota hasn’t lost a critical access hospital since Mayo Clinic Springfield closed in 2020.
Knutson said his hospital has employed several strategies to boost revenues and improve its outlook. Recruitment is underway to replace the urologist that Mille Lacs lost in July, but Knutson said he wants the hospital to expand into cancer care and add tools in its operating room so it can perform joint replacement surgeries.
Three Onamia residents on one street just had their knees replaced elsewhere, he said. “It’s definitely a need.”
Word that Medicare is finally fixing the problem brought hope, Knutson said, because it can’t expand without cash flow and is getting closer to having no money.
“We’re looking at weeks, not months,” he said. “I’ll just say that.”
© 2026 The Minnesota Star Tribune. Distributed by Tribune Content Agency, LLC.
