Mayo earnings hit by Medicaid, labor costs

Feb. 27--Mayo Clinic's net income slipped last year as the Rochester-based health care giant spent more on staffing for growth initiatives, and saw more losses on patients with Medicaid coverage.

Even so, the overall results being released Monday show "it was a strong year," said Kedrick Adkins Jr., the clinic's chief financial officer.

Mayo posted $475 million in net income on $11 billion in revenue, down about 10 percent from 2015 net income of $526.4 million, according to the clinic's latest financial report.

Mayo Clinic has operations in Arizona, Florida, Iowa, Minnesota and Wisconsin, and the total number of patients seeking care last year stayed steady at about 1.3 million. Employment increased by about 5 percent to 63,078 people.

"We strive for a carefully balanced approach that supports Mayo Clinic's mission of offering hope and healing to the sickest of the sick, while assuring economic viability for the future," Adkins said in a news release being issued Monday.

Annual financial reports for 2016 from hospitals are just beginning to trickle in. Earlier this month, the Minneapolis-based Allina Health System reported that operating income was off by about 25 percent before factoring one-time costs related to a protracted nurses strike.

Overall, hospitals in 2016 had a relatively good year, according to a January report from analysts with S&P Global Ratings. But the report cited risks on the horizon with the possible repeal and replacement of the federal Affordable Care Act, which drove sweeping change across the health care industry.

When Mayo Clinic posted record earnings in 2014, flat labor costs compared with the previous year were a key factor. But expenses for salary and benefits picked up in 2015, and grew in 2016 by about 7 percent in 2016.

The clinic is hiring more people as it grows, Adkins said, pointing to new high-tech services in Rochester and Arizona as examples. The clinic also is providing appropriate wage increases to workers, he said, while making investments in the employee pension plan.

Hospitals say they lose money treating patients covered by Medicaid, which is the state-federal health insurance program for people with incomes near or below the poverty line.

But Mayo Clinic saw its estimated unreimbursed cost of serving Medicaid patients grow by about $70 million to $546 million in 2016. Back in 2012, the clinic's comparable Medicaid costs were $321.7 million.

"What we saw was an increase in Medicaid, which is kind of new for us," Adkins said in an interview. He attributed the increase to more patients in Minnesota qualifying for Medicaid coverage with the expansion of benefits under the federal health law.

In 2016, Mayo Clinic contributed $466 million to its pension plan for workers, and spent more than $600 million on capital projects.

For several years, the clinic has bet on growth through its Mayo Clinic Care Network, a subscription service where medical centers around the world consult with Mayo Clinic experts. The network added 10 new groups in 2016, growing the overall tally to 45 members.

Those organizations, in turn, represent more than 120 hospitals, the clinic says, across the continental U.S., Mexico, Puerto Rico, Singapore, United Arab Emirates and the Philippines.

Mayo Clinic revenue in 2016 grew by 6.6 percent to $11 billion. The clinic earned 4.3 cents of net income per dollar of revenue.

Benefactors contributed $296 million to Mayo Clinic during 2016, which was the highest annual tally since development gifts of $399 million during 2013. Adkins said the strong year in fundraising helped grow the clinic's endowment, which stood at $3.7 billion at the end of last year.

"Additionally, benefactors provided $216 million in future commitments, which will support Mayo's mission in the years ahead," the clinic said in a news release.

The annual financial release from Mayo Clinic always includes intriguing details under the "other income" column. Among other things, the clinic has oil and gas holdings that were a gift several years ago from a patient's family. But revenue from oil and gas producing activities was $11 million, off about $3 million from 2015.

"The decrease is reflective of the price change in oil," Adkins said. "In 2016, for most of the year, prices were down."

Twitter: @chrissnowbeck

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