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Mayo Clinic, OMC show profits in independent financial report

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Minneapolis health consultant Allan Baumgarten

A new report on Minnesota health care shows net revenues climbing at most Mayo Clinic facilities and Olmsted Medical Center, though moves to reduce the number of insured patients could reverse that trend.

The study, conducted by Minneapolis-based research consultant Allen Baumgarten, includes data from more than 140 hospitals and health care systems in Minnesota and neighboring states.

Baumgarten, an independent analyst who has reviewed the medical field for 27 years, found the Mayo Clinic system had a combined net income of $528 million in 2016, which reflects a margin of 18.3 percent.

That makes it the most profitable system outside of the Twin Cites.

Mayo Clinic’s Rochester hospitals had a net income of $556.8 million, up from $441 million in 2015.

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However, Mayo’s hospitals in Red Wing, Mankato and Fairmont all lost money in 2016.

Mankato marked a $15.5 million loss, while Fairmont listed a $10 million loss, Red Wing a $3.4 million loss and Lake City a $877,385 loss.

Mayo’s facilities in Austin and Albert Lea made a net income of $1.2 million in 2016 for a slim margin of 0.5 percent. However, the in-patient occupancy days in Austin/Albert Lea hospitals dropped by about 1,000 days in 2016 compared to 2015.

Mayo Clinic announced a controversial consolidation plan for Austin and Albert Lea, which has attracted criticism from the communitym and some political leaders.

Hospital stays

In-patient occupancy for Mayo’s Minnesota regional facilities declined to 62.2 percent in 2016 from 62.8 percent in 2015. Overall, Mayo Clinic’s in-patient days dropped by 6,000 in 2016.

Baumgarten noted that operating income for Twin Cities hospitals fell by $300 million in 2016.

Mayo Clinic and Olmsted Medical Center were bright spots in the financial report in 2016.

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"The Mayo Clinic hospitals … reported combined net income of $528.1 million, or 18.3 percent of net patient revenues of $2.886 billion. That is up from net income of $441.4 million in 2016," according to the report.

Rochester’s OMC also made a good showing, with its net income swelling to $22.4 million in 2016 from $14.1 million in 2015.

Like other hospitals, OMC benefited from the increase in patients with insurance, thanks the Affordable Care Act and other factors.

"Olmsted Medical Center experienced a strong operating margin resulting from a significant growth in patient demand. The organization was able to accommodate the additional volume without incurring significant expense growth," said OMC Chief Financial Officer Kevin Higgins.

Bumps ahead?

While those numbers were good, the overall trend for Minnesota hospitals could have some bumps in the coming years.

The overall state numbers did decline in 2016. Baumgarten attributes some of that downturn to the state’s percentage of insured residents, which had reached a noteworthy level of 95.5 percent.

"However, the turbulence that hit Minnesota’s market for individual insurance, amplified by a year-long effort to repeal or undermine the Affordable Care Act, has resulted in a decline in individual coverage," he wrote. "Proposals to slash future funding for both Medicaid and Medicare would further roll back gains in insurance coverage and would erode the financial strength of hospitals across the state."

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Declines in those numbers could make a significant impact, since Medicare and Medicaid covered two-thirds of the hospital days in Minnesota hospitals.

For Mayo Clinic, Medicare paid for 46.3 percent of inpatient days and 45.1 percent of days specifically in the Rochester hospitals.

"That number, which had been going down, of patients presenting at hospitals without insurance is going back up again. None of that is good for a hospital," said Baumgarten. "I’m a little concerned about what this means for the financial future of hospitals."

Mayo Clinic leaders have noted that government insurance often does not cover the total cost of care. When asked about government insurance’s impact on a hospital’s bottom line, Baumgarten pointed out that while Medicare/Medicaid has increased annually in the recent years, Mayo Clinic has still managed to remain profitable.

"It’s not true, I don’t think, that you can’t make money on Medicare patients … that Medicare payments are so poor that you have to try and mitigate that by charging more to employer group customers," he said. "You can make money with Medicare, in my opinion, if you are managing efficiently."

Expanding systems

Other trends the report touched on included expansion and consolidation as the area health systems jockey for position to strengthen their positions.

Mayo Clinic is working on plans to build a new facility in Hudson, Wis., near the HealthPartners Hudson hospital.

"This is part of a strategy of penetrating the Twin Cities metropolitan area, but also a response to the westward expansion of the Marshfield Clinic, which is building its own hospital in Eau Claire, Wis., where Mayo Clinic runs the larger of two current hospitals," he wrote.

When asked about the reasons for the Hudson expansion and if it signaled an effort to acquire more Twin Cities business, Mayo Clinic representatives ignored the questions and issued a generic response.

"We’re in the very early phase of planning, with the first step being completion of the land purchase. With that complete, we look forward to listening to and working with Hudson residents and other community partners to identify how we can potentially best meet the needs of patients and the community," wrote Jason Craig, vice chairman of administration of the Mayo Clinic Health System in northwest Wisconsin.

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