Financial performance slipped at Minnesota health systems last year, according to a new report, although the 2016 results were roughly comparable to the median operating margin from earlier years.
Median operating income as a percentage of revenue came in at 1.7 percent in 2016, the Minnesota Hospital Association reported Tuesday, down from a median of 2.4 percent in 2015.
Operating margin compares revenue with expenses related to patient care services and activities at health systems. The trade group said operating margin is the “most recognizable, succinct” measure of financial performance.
“There’s going to be variation because it’s a point in time,” Lawrence Massa, the chief executive of the Minnesota Hospital Association, said in an interview. Noting that the median operating margin was 1.8 percent in 2013 and 1.7 percent in 2014, Massa said: “Unless you see this continuing decline, you could argue that it’s pretty stable.”
The report shows financial performance at health systems in 2016 was more clearly off from previous years in terms of net income margin — a measure that looks at revenue and expenses not just from patient care but also philanthropy and investments plus gains or losses from the disposal of assets.
Median net income margin was 1.8 percent last year, whereas the comparable figure was 3 percent or more each year between 2012 and 2015. Massa said one-time factors explained the decline.
“I don’t think it’s any cause for alarm at this point,” Massa said, “but we want to keep looking at this.”
There are 144 hospitals in Minnesota. The report released Tuesday primarily looked at audited financials from 71 groups that operate hospitals in the state.
Some organizations like Minneapolis-based Allina Health System and Rochester-based Mayo Clinic operate numerous hospitals, including some outside Minnesota.
The audited financials track revenue and income not just from hospitals but also other holdings such as clinics, outpatient treatment centers and, in some cases, pharmacies and nursing homes. Most organizations included in the report are based in Minnesota, but some like Sioux Falls-based Sanford Health are based in other states and have operations here.
The report found that some of the largest health systems doing business in Minnesota posted 2016 operating income including Allina ($119.2 million), Fairview Health Services ($130.6 million), Mayo Clinic ($475 million) and Sanford Health ($130.4 million).
“A positive operating margin is necessary to ensure their ongoing ability to serve patients in their community, to maintain strong credit ratings and afford access to capital, and to recruit and retain the highly educated and skilled workforce necessary to care for patients,” the report states.
The report found that 28 out of 71 health care groups surveyed posted negative operating margins for 2016, up from 21 the previous year. A number of the hospitals with negative operating margins operate in rural areas.
“Overall, Minnesota’s urban hospitals tend to have higher margins than rural hospitals,” the report said. “Rural hospitals tend to experience lower margins, on average, due to the smaller volumes of patients they treat and the scope of services they provide.”