Minnesota hospitals worry despite operating profits

Large hospital operators in Minnesota returned to profitability during the third quarter, but the operating income didn't fully compensate for the shutdown of elective health care this spring due to COVID-19.

After large losses in the second quarter, in particular, Allina Health System and Fairview Health Services both posted operating income between July and September, according to financial results released this month. Mayo Clinic, which posted operating income despite the pandemic during the second quarter, saw financial performance improve in the third quarter, according to results posted Thursday.

Fairview is being pressured to reverse plans for saving money by scaling back operations at St. Joseph's Hospital in St. Paul. The latest numbers don't change the restructuring plan or the larger financial picture, said Hayes Batson, the Fairview chief financial officer.

"While the system made strides toward offsetting losses that occurred in the second quarter, Fairview still lost $150 million through the third quarter, which is not sustainable," Batson said in a statement to the Star Tribune. He added: "I wouldn't characterize the [third quarter] as a turnaround."

Hospitals face financial uncertainty going forward as a resurgence of COVID-19 is forcing limits on nonemergency procedures once again.

"We are currently being significantly challenged by the increase in COVID-19 cases and its impact on staffing, which is a key area of concern," said Ric Magnuson, the Allina chief financial officer, in a statement to the Star Tribune. "We are continuing to do everything we can to maintain access to care for all patients who need it while continuing to manage our operating expenses."

Minneapolis-based Fairview Health Services is one of the state's largest nonprofit operators of hospitals and clinics, including the University of Minnesota Medical Center in Minneapolis and Fairview Southdale Hospital in Edina. The nonprofit markets its services in conjunction with doctors at the University of Minnesota under the brand M Health Fairview.

During the third quarter, Fairview saw revenue of about $1.613 billion and expenses of about $1.604 billion, leaving operating income of about $9.8 million. Through the first two quarters, Fairview posted an operating loss of $162.5 million, according to financial statements.

Fairview saw "some improvement to our financials driven by efforts to restore operations after the initial impact of COVID-19," Batson said in a statement. "This, in addition to grant revenue recognized to offset year-to-date lost revenue and incremental COVID expenses, helped us to slightly reduce our year-to-date loss."

In a financial statement released this month, Fairview struck a cautious tone about the future.

"With the number of COVID-19 patients in the Fairview system trending upward … the schedule for elective procedures is being evaluated on a daily basis to allow sufficient capacity to care for patients with critical needs or to free up beds for COVID-19 patients," the health system said in the third quarter report.

Allina posted operating income of $53.6 million on about $1.16 billion of revenue during the third quarter. Financial statements show the health system through the first two quarters of the year had an operating loss of $152.4 million.

"We are still operating at a loss of $99 million [year-to-date]," Magnuson said in a statement. He added that Allina received during the third quarter about $58 million in federal CARES Act funding. "Without that additional funding and expense management, we would have had a slight operating loss," he said.

Mayo Clinic in the third quarter reported $288 million in operating income on $3.65 billion in revenue. Mayo says that, year-to-date, revenue is down slightly and operating earnings are off by about 50% compared to last year, when the clinic reported record financial results.

Mayo says it still plans to return a portion of federal CARES Act funding the clinic received earlier this year and will finalize those details before year's end.

"Though Mayo Clinic continues to recover financially, the pandemic and the resulting economic downturn will present challenges well into 2021," the clinic said in a statement.

Based in Rochester, Mayo Clinic is Minnesota's largest employer with operations extending to Arizona, Florida, Iowa and Wisconsin.

Fairview employs more than 34,000 people across 10 hospitals, 91 clinics and a pharmacy division. Allina operates 11 hospitals and 65 clinics, and employs more than 29,000 people.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck