COVID-19 drove $57.7M loss at Minneapolis-based Fairview Health Services last quarter

Fairview Health Services last quarter spent more money replacing staff — burnt out by the pandemic — and brought in less revenue as COVID-19 continues to sap its hospitals' resources.

The Minneapolis-based nonprofit, which is one of the state's largest hospital operators, racked up a loss of $57.7 million on $1.6 billion of revenue for the three-month period spanning July through September.

And while most hospital systems are dealing with the same public health crisis, the financial picture varies among them.

Fairview saw third-quarter staffing shortages due to a surge of early retirements and burnout amid the pandemic, Hayes Batson, the chief financial officer at Fairview, said in an interview.

To fully staff its network of hospitals and clinics, Fairview had to pay more overtime and shift bonuses, Batson said, in addition to offering retention incentives and hiring contract labor.

Meanwhile, the highly infectious delta variant of the pandemic virus gained momentum throughout the third quarter, sending more patients sick with COVID-19 to the hospital.

"For every additional COVID case, it's one less surgical case," Batson said. "Those surgical cases, in many instances, are high-acuity-type situations and there's much higher margin in those than there is in a COVID case."

The quarterly figure means year-to-date operating losses at Fairview are rivalling 2020, when many health systems reported weaker financial results as the pandemic disrupted routine health care for many patients.

There's some evidence that other large hospital operators in Minnesota have seen some financial recovery this year.

In financial results this month, Minneapolis-based Allina Health System reported $107.6 million in operating income through the first nine months, a rebound from a loss of $98.8 million during the same time period in 2020.

Mayo Clinic didn't lose money last year — the Rochester-based health system saw operating income of $355 million through the first three quarters of 2020 — but this year's financial results look even stronger. In a financial disclosure this month, Mayo said its operating income for the first nine months of the year is just over $1 billion.

But at Fairview, the third quarter results mean the cumulative loss on operations thus far this year is $132.9 million — just shy of last year's operating loss through three quarters of $152.6 million.

Batson said he couldn't comment on financial results at other health systems. But he suggested Fairview might be dedicating a higher share of its ICU beds to patients with COVID-19.

Citing data from a statewide coordination center, Batson said pandemic patients in mid-November filled about half of the ICU beds at Fairview, versus roughly one-third of ICU beds at many other medical centers across the state.

That's potentially a significant difference, Batson said, because it would mean Fairview has relatively less capacity for handling surgical patients that generate more revenue due to differences in "DRGs," the diagnosis-related group coding system that hospital and insurers use to classify patients for billing purposes.

"Your ICU beds are your highest revenue and margin generating beds," Batson said. "If they're dedicated to COVID, respiratory DRGs, rather than other better-paying DRGs, your financials are affected."

Year-to-date, Fairview has seen nearly $134 million in investment income, which means the health system thus far has a $6.2 million excess of revenue over expenses. To improve operating results, Fairview is creating a three-year plan that's scheduled to be approved by the health system's board of directors in December.

"The draft plan seeks to bring Fairview back to profitability over the next three years through organic volume growth, strategic actions and performance improvement plans," Fairview said in a financial statement.

Fairview's inpatient admissions through the first nine months of the year are flat compared with last year. Surgeries are up nearly 11% while emergency room visits are up nearly 2%.

At Allina, hospital admissions through the first three quarters are up nearly 8%, while surgeries are up 23% and ER visits are up nearly 12%. During the third quarter, Allina posted operating income of $22.2 million on $1.2 billion of revenue.

Allina is no longer losing $40 million per week like it was in spring of 2020 when the health system had to shut down elective procedures to conserve protective equipment and supplies to handle COVID-19, said Ric Magnuson, the chief financial officer. But COVID-19 continues to be a financial challenge for the health system, which also faces staffing challenges, Magnuson said.

In response to the growth in pandemic patients, Allina started in mid-September to reschedule and delay some surgeries.

"We thought we were headed down again in COVID," Magnuson said. "But unfortunately, starting in September, COVID started to spike up and we are at record levels again."

Fairview Health Services is one of the state's largest nonprofit groups with more than 34,000 employees. Under the brand M Health Fairview, the health system operates 80 primary- and specialty-care clinics as well as nine hospitals including University of Minnesota Medical Center in Minneapolis and Fairview Southdale Hospital in Edina.

Allina employs more than 28,000 employees and operates more than 90 clinics and 11 hospitals, including Abbott Northwestern in Minneapolis and United in St. Paul.