Operating income jumped by more than one-third last year at Mayo Clinic, as the Rochester-based hospital and clinic system posted its strongest performance in more than 25 years.
The volume of patients seeking care from Mayo Clinic was strong, including sicker patients who stayed longer than anticipated, said Chief Financial Officer Kedrick Adkins Jr.
At the same time, tight control on expenses meant that Mayo Clinic provided the care without a significant increase in labor costs, Adkins said.
Expenses in 2014 were just 1.3 percent higher than during the previous year.
"We had a moderate growth in revenue, but really almost flat growth in expenses," Adkins said. "That created significant net operating income."
The financial performance in 2014 will allow the health system to invest $1.5 billion over several years on information technology including a new electronic health record system, clinic officials said. Mayo also contributed $410 million toward its employee pension plan in 2014.
"It was a very good year for them," said Dan Steingart, an analyst with Moody's Investors Service.
In general, hospitals face challenges as health insurers and the government push to pay less for health care services, Steingart said. But Mayo Clinic's reputation helps it push back against the trends.
"There's always going to be willing patients that want to go to Mayo Clinic," he said. "The effect of that demand — which tends to be for high-accuity, high-reimbursed services — is something that differentiates them from the rest of the industry."
For 2014, Mayo Clinic posted income from operations of $834.3 million, coming on revenue of about $9.76 billion. The previous year, Mayo Clinic saw income from operations of $612.1 million on $9.42 billion in revenue.
The operating margin of 8.5 percent was the highest posted by the clinic since 1986.
It's difficult to compare the Mayo Clinic margin with that posted by other hospitals, Steingart said, because Mayo includes investment income in its calculation. Mayo Clinic tends to be one of the first nonprofit health care systems to report financials for the 12-month period ending in December, he said.
Mayo's hospital and clinic operations extend across southern Minnesota into Wisconsin and Iowa. The clinic also has hospitals in Arizona, Florida and Georgia.
Last year, Mayo Clinic treated about 1.3 million patients, up from nearly 1.1 million patients in 2010.
Mayo Clinic is one of Minnesota's largest employers, with nearly 40,000 employees in the state last year. Overall, the clinic employs nearly 60,000 people.
The clinic is the anchor for an ambitious economic development project in Rochester called Destination Medical Center, which is backed by millions from state taxpayers.
The financial statement released Tuesday included at least one surprise about the breadth of Mayo's economic reach — the clinic recorded $23.8 million in revenue during 2014 from oil and gas-producing activities. A few years ago, Mayo Clinic received a gift of land and oil field royalties, said spokesman Karl Oestreich.
"I don't know what year that was, but now — fast forward — Mayo is a majority owner in the company that is doing some oil and gas drilling," Oestreich said. "So, now we have to report that in that 'other revenue' category."