Allina Health reported its biggest-ever annual loss on operations last year but also saw significant improvement in financial performance during the fourth quarter.

The Minneapolis-based health system, which released year-end results this week, attributed an overall loss of $317.8 million to industrywide challenges, including high staffing expenses and difficulty discharging patients to step-down facilities.

In the fourth quarter, however, salary and benefit costs were down slightly compared with the same time period in 2022 while revenue increased.

"That's showing that we're able to care for more people ... [while] being able to manage expenses," said Ric Magnuson, Allina's chief financial officer, in an interview. "We're optimistic on that piece – and there's still headwinds."

There are continuing challenges, Magnuson said, from Minnesota's lack of population growth and the aging of the state's residents. This means more patients are covered by government-funded health insurance programs that provide relatively low reimbursement rates for health care services.

In July, Allina Health announced it was eliminating about 350 jobs amid what the nonprofit health system called unprecedented financial pressures. Savings from the workforce reduction were a factor in the improved financial results during the fourth quarter, Magnuson said.

In addition, Allina had more success hiring workers near the end of the year, lowering its reliance on costly labor hired through agencies for temporary workers.

Finally, the health system has been finding more beds in skilled nursing facilities that can take patients who are ready for discharge. A lack of capacity in these step-down facilities generally has meant patients are spending more time in the hospital without corresponding increases in health insurance payments.

"Allina Health has made a concerted effort to expand access to skilled nursing facilities, reduce delays in patient transfers when appropriate and, ultimately, ensure patients receive the right level of care at the right place," the health system said in a financial statement released Wednesday.

Earlier this month, S&P Global Ratings lowered its rating on Allina's long-term debt by one notch, a move that can make future borrowing costs more expensive. The ratings agency said it was giving Allina a stable outlook — rather than a negative outlook — because of the fourth quarter improvements as well as "a consultant-assisted turnaround plan geared at returning operating performance to break-even in 2024."

"Management has confirmed that its turnaround efforts are gaining traction," S&P Global Ratings wrote in a report. "We view these initiatives and recent performance improvements positively, although we believe that returning both operations and the balance sheet to previous levels likely remains a multiyear process."

Allina Health is Minnesota's seventh-largest nonprofit group. It runs Abbott Northwestern Hospital in Minneapolis, United Hospital in St. Paul and a large network of clinics, employing more than 28,000 full- and part-time workers.

During the fourth quarter, Allina posted about $2 million in operating income on $1.38 billion of revenue. After factoring investment gains, overall revenue at the health system exceeded expenses by $73.1 million.

Earlier this month, Allina said it was hiring Optum to take over IT and bill-collection services in a deal that includes shifting about 2,000 jobs to the Eden Prairie-based division of UnitedHealth Group.

On Tuesday, Allina announced plans to reconfigure services at Mercy Hospital in Anoka County, which consists of campuses in Coon Rapids as well as Fridley.

Surgeries will no longer be performed at the Unity campus in Fridley, Allina says, and ICU services will be concentrated in Coon Rapids, as well. Mercy will no longer provide inpatient pediatric care, a service that Allina said was generating a low volume of patients.

Unions for nurses and physicians at Allina say 69 of their members are losing jobs due to these changes. Allina said it expects many will find employment elsewhere in the health system.