Mayo Clinic income slips with labor costs

Higher labor costs cut into income last year at the Mayo Clinic, according to numbers being released Monday, as the state's largest employer didn't score a repeat of 2014's record financial results.

The income decline wasn't a surprise, clinic officials said, and reflected increased staffing needs as sicker patients spent more time in the hospital.

Mayo Clinic saw more pension costs in 2015, too, and needed more staff as it launched information technology projects plus a next-generation radiation treatment center in Rochester.

Employment during the year grew by more than 4,000 jobs to 64,033 people across Mayo's six-state network of hospitals and clinics.

"We did not plan to have another record year," said Pat McCarty, vice chair of financial planning and analysis. "We're in more of an investment mode now. … We're growing some of our staff to support those new investments."

The results come as the financial outlook for nonprofit hospitals is stable, according to a report this month from Standard & Poor's. Expanded Medicaid coverage in many states, including Minnesota, has helped provide at least a short-term boost in the number of patients.

Medicaid was a bigger source of gross revenue for Mayo Clinic in 2015, McCarty said, but there was even more growth in the share covered by the federal Medicare program. He attributed the increase to baby boomers getting older.

Mayo Clinic's results are difficult to compare with other hospitals due to accounting differences. The results, for example, include some income from the clinic's sizable investment portfolio.

After adjusting for some of those factors, it's clear that operating income in 2015 was more like it was in 2012 and 2013, said Martin Arrick, an analyst with Standard & Poor's. But Arrick said he didn't see any trouble signs.

"I think the fundamental business is still totally sound," Arrick said. "It's just, the fundamental cost of doing business has come up a little faster than their revenue."

Mayo Clinic treated about 1.3 million patients in 2015, which was up slightly from the previous years. The clinic saw a faster growth rate in total patients the previous three years, but the 2015 numbers reflect the clinic's focus on patients with the most serious medical needs, said McCarty.

The average length of time patients stayed in Mayo Clinic hospitals increased again last year.

Growth in Mayo Clinic's endowment slowed in 2015, with a year-end value of $3.37 billion. At the end of 2011, the endowment stood at $2.28 billion.

Benefactors contributed $277 million to fund Mayo Clinic programs last year, and the clinic's capital expenditures exceeded $600 million. Foremost among the capital projects is a new electronic health record system as well as a revenue cycle management system, that will help Mayo collect patient bills and provide out-of-pocket cost estimates.

In January, Mayo Clinic announced a plan for spending $92.7 million on facilities and equipment that will lead to more private rooms in Rochester, better roads near its hospital in Florida and a new airplane for transporting patients. The breadth of its operations comes through in the health system's financial statement.

Revenue from "retail stores" doubled last year to $41 million because the clinic expanded the number of eye centers within its campuses that sell eyewear, McCarty said.

Retail pharmacy sales grew by about $30 million to $281 million last year. Cafeteria revenue was flat at $38 million. And revenue from the clinic's oil-and-gas-producing activities fell from $24 million to $14 million.

Christopher Snowbeck • 612-673-4744