CEO says Mayo Clinic in 'very, very strong financial position'
Mayo Clinic estimates that the reimbursements it receives for patient care will be cut 20 percent to 40 percent in the next five years because of a rapidly changing health-care system.
But even with Standard & Poor's recent downgrade of its outlook on Mayo's debt, clinic CEO Dr. John Noseworthy said the nonprofit health-care provider is "in a very, very strong financial position."
At its annual financial report Wednesday in the Baldwin building, Mayo reported revenue grew 6.3 percent to $8.8 billion, even as expenses increased 9.6 percent to $8.4 billion. Income was $395 million, for an operating margin of 4.5 percent, which aligns with the clinic's long-term objectives, he said.
Noseworthy said the clinic plans to "build for the future" — despite those cuts to the flow of federal, state and health-insurance reimbursement dollars.
The road ahead for health providers will be littered with hurdles, judging from Noseworthy's description. But Mayo also has a bold plan for future sustainability, expansion and world leadership that includes solidifying Rochester and Minnesota as the top destination worldwide for expert medical care.
Mayo has studied the implications of the Affordable Care Act and other federal changes.
"There's an awful lot of unknowns about how health-care reform is going to play out," Noseworthy said.
Affordable Care Act-inspired state health insurance exchanges will probably pay only about 25 percent more than Medicare (which often does not pay enough to cover the cost of providing care), and the influx of newly insured patients will not make up that revenue, Noseworthy said in an interview after his formal remarks. Many changes are expected in the coming years in how providers are paid.
Plus, what Mayo and other health providers already get for Medicare will decrease.
"What that means is we need to change, completely, how we work," Noseworthy said. One change, for instance, is that Mayo will make greater use of physician assistants and nurse practitioners.
Mayo is actively developing new ways to directly connect with any patient, any doctor, any time, anywhere in the world, using new technology.
For example, a remote monitoring system developed at Mayo got FDA approval in 2012 and will be available to doctors this year.
Such technologies will help Mayo, increasingly, have direct contact with patients in locations far removed from brick-and-mortar clinic facilities.
The Mayo Clinic Care Network added 14 members in the past 16 months, including one in Puerto Rico. Expansion of that network will continue this year, with an expected 10 additional facilities, including about two internationally, Noseworthy said.
Mayo expects to announce new companies Friday that will open in the clinic's Business Accelerator in the Minnesota Biobusiness Center.
Mayo is borrowing money while interest rates are low, said Chief Financial Officer Jeff Bolton, as a planned move to expand facilities while borrowing is less expensive. That's one reason Standard & Poor's gave Mayo's debt a negative outlook, while keeping its bond rating AA.
Another hit to Mayo's rating is its underfunded pension plan, currently at 84 percent of full funding; although it was fully funded a few years ago.
The federal government's manipulation of interest rates to an artificially low level to spur economic development, Bolton said, is the reason Mayo's pension fund's funding level dropped and stays under 100 percent. With lower rates, more bonds are needed to generate the same amount of money.
Mayo continues boosting the fund and Bolton said once interest rates rise, Mayo once again will return to a fully funded status, he said.
Noseworthy emphasized Mayo already has top-quality infrastructure and technology, a highly skilled workforce of 61,000 (including 34,223 in Rochester alone) and an excellent business culture considered among the best places to work in the U.S.
Those things taken together, he said, will allow Mayo to "use our knowledge to scale; to reach more people, build our brand strength and, ultimately, our referral network going forward."
They also allow Mayo to approach strategic planning from a position of strength.
"Mayo is at the very tippity top, which allows us to be nimble," Noseworthy said
Noseworthy said another worry for health providers is that the discounts insurance companies got in the past — because of their former power in policyholder numbers — will shrink at the same time as low-paying state exchanges kick in. Some fear financially strapped hospitals will close, affecting patient access to care, Noseworthy said.
So the next few years as the Affordable Care Act kicks in will be a wild ride, one Mayo plans to lead.
"It's crazy," Noseworthy said. "Hang onto our hats!"