Mayo's outlying hospitals, clinics see earnings jump

More specialty services and tighter expense control helped boost earnings last year at Mayo Clinic Health System, the network of clinics and hospitals in Minnesota, Wisconsin and Iowa minus Mayo's flagship medical center in Rochester.

The margin across the health system remained significantly lower than at Mayo Clinic Rochester, as well as the clinic's large hospitals in Arizona and Florida, according to a filing last month with bondholders.

But operating income more than tripled last year across the health system, which includes 17 hospitals in communities such as Austin, Mankato and the Wisconsin cities of Eau Claire and La Crosse.

"The most significant year-over-year change in operating performance was the material improvement in the Mayo Clinic Health System," the clinic said in its filing. "Continued turnaround efforts produced net operating income of $69 million, $50 million more than 2017."

Last year's operating income at Mayo Clinic Health System was a little less than 10 percent of the clinic's overall operating income of $706 million. The largest hospitals at Mayo tend to treat sicker patients, the clinic said, and offer surgical services that generate more revenue. Overall revenue for Mayo was $12.6 billion.

Mayo Clinic started building a network of clinics and hospitals across southern Minnesota and parts of Iowa and Wisconsin in 1992. At times, the network has generated friction in local communities, such as a dispute that started in 2017 when Mayo announced plans to move some health care services from its hospital in Albert Lea to nearby Austin.

Mayo moved the intensive care unit from Albert Lea in 2017 and surgical services last year, the clinic said in response to Star Tribune questions. But the moves "affected the bottom line only negligibly," officials said via e-mail, since patient volume held steady with the move to Austin.

When Mayo released overall financial results last month, officials noted that installation of the new health record system in Rochester, Arizona and Florida resulted in a $50 million revenue reduction as the clinic elected to reduce the volume of scheduled services to help workers manage the transition.

"The factors that drove the modest growth [at Mayo Clinic Health System] are a mix of initiatives, some around personnel and enhancement of services, some more in the category of process improvements," the clinic said in its statement. "We enhanced and elevated certain specialty services in certain areas [such as orthopedics and neurosurgery], improved patient access and tightened cost management control measures."

When Mayo announced overall financial results last month, the clinic said it is making $1 billion worth of strategic investments in capital projects, including $86 million for projects across Mayo Clinic Health System. Those include a new surgery center in Mankato, a hospital expansion in Barron, Wis., and a campus expansion in Austin.

Hospitals in the health system have a range of capabilities, the clinic said, including fairly advanced services in Eau Claire and Mankato to more basic offerings at smaller centers.

"Mayo — as all providers — will continue to be challenged to deliver access to care in rural areas," the clinic said in a statement. "Demographics, shortage of providers and changing reimbursement models continue to impact health care systems. We are working to increase access and determine unique solutions to these challenges, and as we navigate this environment, we expect ebbs and flows in financial performance."