Operating income slipped by nearly 30% last year at Allina Health System, but results could have been worse had the Minneapolis-based health system not made key changes that delivered stronger financial results in the second half of 2019.
Like others in Minnesota, Allina started 2019 with depressed demand for health care services due to rough winter weather and a mild flu season. Early financial losses continued in the second quarter, but ultimately were offset due in part to a process improvement program that executives said they started planning the previous year.
Changes involved standardizing supply purchases and identifying efficient care pathways for patients, such as a change with mental health care in emergency rooms that created space for an additional 2,000 patients.
"All that was part of the plan that I mentioned about driving for $80 million of improvement in 2019, to build that momentum that we saw in part toward the last part of the year," said Ric Magnuson, chief financial officer at Allina, in an interview. "It shows up on both the revenue side and the expense side."
With more than 27,000 employees, Allina operates 65 clinics and 11 hospitals including Abbott Northwestern in Minneapolis and United Hospital in St. Paul. The health system is in the process of launching a push to build up to a dozen surgery centers in conjunction with the Optum division at Minnetonka-based UnitedHealth Group.
For the year, Allina posted operating income of $62.6 million — down from $86.3 million the previous year — on $4.47 billion in revenue. Operating income during the last three months of the year came in at $78.8 million, offsetting an overall loss across the first three quarters.
Strong investment returns for the year meant Allina posted overall net income of $302 million, up from $22.4 million in 2018.
Magnuson said Allina faced several headwinds in 2019 including new health insurance rules for defining which patients are considered as being admitted for inpatient care vs. treated under "observation" status. Observation patients generate much less revenue for a hospital, so the new rules hurt revenue at Allina.
Financial performance was helped by the process improvement program, which created more access for patients to receive treatment in a number of areas, said Lisa Shannon, chief operating officer at Allina.
Called the Allina Health Improvement System, the program was driven by a team of employees with help from outside consultants. Executives say it involved using lean management principles and efforts to boost efficiency and quality.
Shannon described an example of how the program helped drive a change so caregivers quickly determine which mental health patients in the ER can safely be redirected to community programs or outpatient care.
"On mental health, it's probably not one thing [that's changed]," Shannon said. "When you can imagine everything from how we assess a patient and how to keep them safe, how to discern on their right next treatment … we've brought clinicians working closer together. So, where previously we might have had a sequential multidisciplinary assessment … now we do things more simultaneously, in real time, to enhance provider communication."
Allina executives said the number of full-time workers held steady for 2019, adding that they saw savings in labor costs through attrition.
"We did not do a layoff," said Magnuson, the chief financial officer. "It's a credit to the work that was planned out over 18 months ago, to do this in a very methodical approach."