Allina Health reports higher income on labor savings

Operating income grew by more than 20 percent last year at Allina Health System as the Minneapolis-based network of hospitals and clinics hired more than 1,200 nurses during the year, thereby avoiding extra costs with temporary workers.

The extensive hiring of nurses helped moderate the growth in labor costs, said Ric Magnuson, the chief financial officer at Allina, as the health system improved revenue by extending some clinic hours and boosting operating room efficiency to give more patients access to care.

Four of Minnesota's largest health systems have now released financial results for 2017, and the nonprofits generally are reporting improved financial performance when investment income is added to the mix.

"We're not-for-profit, and everything gets reinvested back into the organization," Magnuson said in an interview this week. "With us exceeding what we planned, we increased our overall capital plan for 2018 because of our results, in order to provide more services back to the community."

Most health systems report operating income as the difference between the amount they spend on operations and the revenue they receive from insurers and patients for providing care plus revenue from other activities, such as parking garages and cafeterias.

In 2017, Allina posted operating income of $145.9 million on revenue of $4.14 billion, for a profit margin of 3.5 percent. In 2016, Allina's operating income was $119.2 million on revenue of $3.95 billion, for a profit margin of 3 percent.

One-time costs connected with a protracted nursing strike swallowed its operating income in 2016, however. The strike prompted some nurses to find employment elsewhere, Magnuson said, so Allina in 2017 faced a big job filling those gaps with new hires rather than registered nurses (RNs) who work on a temporary basis.

"It allows us to have our employees provide care to our patients vs. [using] contracted labor," Magnuson said of the RN hiring. "When you hire and bring in nurses from the external, from the temporary agencies, that's very expensive."

In the end, the health system last year hired 1,287 nurses to work in its hospitals; bringing the total number of RNs in those positions to 6,457. Salary and benefit expenses between 2016 and 2017 grew by just 3 percent, a slower rate than the previous year.

Allina also worked in 2017 to reverse an early-year problem with more patients leaving the emergency room without being seen due to long waits, Magnuson said. It helped that Allina completed construction projects during the year at some of the health system's busiest emergency rooms.

With 27,500 employees, Allina is one of the state's largest health care providers. The health system owns 11 hospitals and 65 clinics, while employing 1,420 physicians.

In addition to reporting their income from operations, health systems also report the money they make from investment returns. They describe the sum of operating and investment income as excess revenue over expenses, or net income.

During 2017, investment income at Allina roughly doubled over the previous year to $166.8 million, resulting in $295 million in excess revenue beyond expense.

Minneapolis-based Fairview Health Services saw a 25 percent decline in operating income last year to $98.5 million due in part to its merger with St. Paul-based HealthEast. At the same time, investment income at Fairview more than doubled to $198.8 million.

After factoring both operations and investments, Bloomington-based HealthPartners reported this month that net income last year grew by 75 percent to $175.5 million. In February, Mayo Clinic reported net income of $707 million in 2017, up 49 percent over the previous year.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck