One of Minnesota’s smallest hospitals is eliminating inpatient care and converting to a rural emergency center, a move designed to keep its doors open amid financial struggles.

Mahnomen Health Center’s administrator notified the state earlier this month of plans to close the hospital’s inpatient unit and only operate an emergency room to stabilize and observe patients. State leaders said the northwest Minnesota hospital could be the first of many to be forced by financial shortfalls into this transition, which will be discussed at a state public hearing on April 30 and then take effect the next day.

“The struggles of not-for-profit hospitals in Minnesota are real, they are escalating, and now we are headed toward closures of service lines and closures of things that communities need,” said Dr. Rahul Koranne, chief executive of the Minnesota Hospital Association. The trade group is lobbying Minnesota lawmakers for an increase in hospital payment rates by the state’s Medical Assistance program, which haven’t been adjusted for inflation since 2019.

Minnesota has maintained a broad rural network of inpatient medical care far longer than most states. But about a quarter of its 127 hospitals have been in financial distress and were struggling before the challenges of the COVID-19 pandemic. Mayo Clinic’s hospital in Springfield closed in 2020 while several other rural facilities cut high-cost inpatient services such as baby deliveries.

Mahnomen will be the first in the state to contract into a rural emergency hospital — a federally designated level that was offered as a lifeline for struggling hospitals last year. Such facilities must treat patients within 24 hours on average, but can keep patients for longer periods of observation and care as long as that average is maintained by year’s end, said Mahnomen administrator Dale Kruger.

“At hour 25, (the federal rule) isn’t that you have to push them out onto the street,” he said.

The change nonetheless creates a gap of inpatient care that will extend beyond Mahnomen, a community of 1,200 within the White Earth Reservation. The nearest full-service hospitals are 28 miles away in Ada and Fosston, where the mayor and community leaders have been fighting plans by Essentia Health to stop scheduling baby deliveries. The nearest regional hospital is 36 miles south in Detroit Lakes.

Mahnomen is managed by Sanford Health, but owned by Mahnomen County and the city government. The hospital posted an operating loss of 26% in 2022, when it staffed 10 of 18 licensed inpatient beds, according to the most recent public financial data. It was one of the poorest performing hospitals in Minnesota that year, though another 41 lost money and four in Granite Falls, Onamia, Hallock and Lake City lost more than 15% on hospital operations.

Like most small hospitals, Mahnomen buoyed some losses with operating gains from outpatient clinics and elder-care facilities. Kruger said it faces unique challenges serving Minnesota’s poorest county. More than 5% of its charges to patients were written off as unpaid debts, by far the highest rate in Minnesota.

The new designation should have a $1 million impact and cover the hospital’s shortfalls, Kruger said, while minimally affecting patient care. The hospital in 2022 only admitted 52 patients, who stayed on average for three days.

“It was a way to assure health care into the future for our community,” he said.

Nationally, 23 hospitals have switched to rural emergency hospitals, according to the NC Rural Health Research Project. Only eight had been critical access hospitals, a special designation that qualified the nation’s smallest medical facilities such as Mahnomen for increased federal payments. Koranne said other Minnesota hospitals are weighing the switch.

Critics have called rural emergency hospitals “Band-Aid Stations” because of their limited scopes, but Kruger said that was the same label used in the late 1990s when Mahnomen became the state’s first critical-access hospital. He remained confident that local patients would rely on Mahnomen for outpatient and emergency care. The hospital’s 24-hour ER has five bays, including two trauma bays that rapidly resuscitate and stabilize patients.

The Minnesota Department of Health on Wednesday announced the informational hearing — the eighth since the state started requiring them before substantial changes in hospital operations.

Earlier hearings covered the closures of baby delivery units in Fosston and New Prague, a mental health unit in Fergus Falls and an addiction unit in New Ulm. Doctors and nurses spoke in opposition at a hearing last month to Allina Health’s plan to close inpatient pediatric beds at Mercy Hospital, and relocate intensive care and surgical services from Mercy’s Fridley campus to its Coon Rapids campus.