Mayo Clinic was in "growth mode" in 2016 as its net operating income fell to levels not seen since 2012, while revenues rose by 6.6 percent.

The 2016 financial report released this morning shows Mayo Clinic's net operating income was $475 million, down from $526.4 million in 2015. The operating margin for 2016 was 4.3 percent. That's a significant drop from 5.1 percent and 8.5 percent in 2015 and 2014, respectively.

However, revenue from current activities climbed to $10.99 billion from $10.3 billion in 2015.

Mayo Clinic added to its staff to end 2016 with 63,078 employees, an increase from 60,110 in 2015. Those numbers do not include medical residents, fellows and students.

Meanwhile, donations to Mayo Clinic grew in 2016 to $296 million from $277 in 2015 and $288 in 2014.

Mayo Clinic Chief Financial Officer Kedrick Adkins discussed an early version of the report with reporters on Friday.

"2016 was a strong year for us. It reflects the continued investment that we're making in our organization, in the infrastructure as well as our people. It also reflects some of the economic challenges that are in the health care environment for patients and providers," he said. "We're in growth mode … 6.6 percent growth that is characteristic of some strong revenue growth across the organization."

Investments in future

Mayo Clinic CEO Dr. John Noseworthy also lauded the 2016 results.

"Our strong financial performance enables Mayo to hire and retain the best talent, and invest in technology, facilities and our staff as we strive to deliver the best outcomes and service to our patients," he stated in the release that accompanied the annual report.

Adkins pointed to clinic's investments in facilities, its education systems and its technology as accounting for the drop in operating income. Its capital expenditures exceeded $600 million in 2016, which is exactly the same amount Mayo reported in 2015. Mayo Clinic reported that its total investment in the Destination Medical Center initiative grew to $9.5 million, up from the $8 million tally it listed in 2015.

"We recognize that we have to grow and expand. Our growth in expenses is reflective of the major projects we have under way," said Adkins. "The electronic health records and IT infrastructure update is a project that is in excess of $1 billion."

That project is mostly being driven by the Verona, Wis.-based health care giant Epic. However, Adkins says that more that $1 billion is not all going to Epic and reflects some of Mayo Clinic's internal costs.

"It's not like demand is down," he said, emphasizing that Mayo Clinic's investment in facilities and people is what made 2016's report less impressive than those in 2015 and 2014. "Our volume growth was strong. Our revenue was up 6.6 percent. Surgery was up over 2 percent. ER visits were up by 3.5 percent."

Net revenue for medical services in 2016 was $9.22 billion, up from $8.62 billion in 2015.

Patients makes perfect

Mayo Clinic's total patient numbers have held steady the past few years. Mayo Clinic treated 1,318,800 patients in 2016, just 500 more than the 1,318,300 it treated in 2015. In 2014, 1,317,900 patients were seen by Mayo Clinic.

A decrease in income from for-profit initiatives and ventures did result in a much lower income tax bill for Mayo Clinic. In 2015, Mayo was charged $33 million for state and federal income taxes. That number dropped to $13 million in 2016.

"In 2015, we had a really big year for some of our venture activity. We were at a solid level in 2016, but not at the level of 2015," said Adkins.

Mayo Clinic was hurt by more than $25 million in losses in 2016 from Mayo Clinic Health System - Waycross, Georgia. It added Waycross as an affiliate in 2012. On Sept. 29, 2016, Mayo Clinic signed a non-binding memo of understanding with HCA Management Services to sell the Waycross facility, though that deal is still pending.

"It's a situation we continue to look at and manage. We're looking at finding another partner for Waycross. It's just taking a little longer than we hoped," said Adkins.

In 2016, Mayo Clinic provided $83 million in unreimbursed charity care, which was an increase from $73 million in 2015. In addition, it provided $546 million in unreimbursed medical care for patients in Minnesota's Medicaid programs.

"From environmental stewardship efforts, community wellness initiatives and outreach to reduce health disparities among our most vulnerable citizens, Mayo Clinic is committed to giving back to our communities," said Mayo Clinic VP of Administration Jeff Bolton in the announcement.

Mayo Clinic reported $4.3 billion in net property and equipment, minus depreciation and amortization, at the end of 2016. That's up from $4.2 billion in 2015, though construction in process was down to $381 million from $411 in 2015.

Looking to 2017

After a building year, what does 2017 look like for Mayo Clinic?

"More of the same," said Adkins. "Mayo being in growth mode will continue to hold true for 2017."

The investment in the medical records change over to the Epic system and other technology upgrades will continue.

"For the next two to three years, we'll see our financials reflect the work that we're doing at rebuilding that technology," he said. "At the same time, we're clearly making investments in our physical facility, research and education."

Adkins added that more staff will also be needed to support that growth, so expects to see Mayo Clinic's employee number to continue to grow in 2017 and 2018.


Other Mayo Clinic revenues

Cafeteria revenue — $40 million in 2016, $38 million in 2015, $37.5 million in 2014 and $38 million in 2013.

Retail pharmacy sales — $278 million in 2016, $281 million in 2015, $251.4 in 2014 and $164.2 in 2013.

Royalties — $61 million in 2016, $65 million in 2015, $52 million in 2014 and $38.4 million in 2013.

Retail stores — $53 million in 2016, $41 million in 2015, $20 million in 2014 and $24.8 million in 2013.

Graduate medical, other education — $35 million in 2016, $31 million in 2015, $43 million in 2014 and $66.4 million in 2013.

Oil- and gas-producing activities — $11 million in 2016, $14 million in 2015, $23.8 million in 2014 and $700,000 in 2013.

Other — $209 million in 2016, $182 million in 2015, $192 million in 2014 and $169.4 million in 2013.

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Business Reporter

Jeff has worked at newspapers as a reporter, columnist, editor, photographer and copy editor since 1992. He started at the Post Bulletin in 1999. Kiger is the PB's business reporter and writes a daily column, "Heard on the Street."