Income steady at Fairview Health Services in 2018

Operating income held steady last year at Fairview Health Services as the Minneapolis-based operator of hospitals and clinics continues to work on improving financial results from its HealthEast business in the east metro.

The 2018 numbers fit with the broader trend of stabilization in revenue and expense for nonprofit health care systems across the country, said Hayes Batson, the Fairview chief financial officer, in an interview.

Income for 2019 could be lower, Batson added, because Fairview this year will put more money toward its partnership with the University of Minnesota, a new marketing campaign and a project to realign operations around service lines rather than geography. Batson offered no news on the future of St. Joseph's Hospital in St. Paul, which Fairview took over as part of its 2017 merger with HealthEast.

"What I'm struck by is just the number of investments that we're making right now that we know will produce future benefits," Batson said. "I do expect margin pressure in 2019 due to the timing of these."

Fairview employs more than 33,000 people at a health care system that includes 10 acute-care hospitals, more than 100 clinics, a large pharmacy business and long-term care facilities.

For 2018, Fairview posted operating income of $96.7 million on $5.6 billion in revenue, according to a financial statement released this month. The previous year, Fairview saw operating income of $98.5 million on $5.2 billion in revenue — results that represented a 25% decline in operating income from the previous year.

Fairview officials attributed the decline in 2017 to the merger that year with St. Paul-based HealthEast, which historically had relatively weak financial performance. HealthEast's operations included St. Joseph's Hospital, the St. Paul medical center that's Minnesota's oldest hospital.

St. Joe's has struggled financially in the past, and it continues to draw a relatively high share of patients with government insurance coverage that provide less reimbursement, Batson said.

Batson, who became CFO just a few weeks ago at Fairview, said he's beginning a process across Fairview to review all operations in terms of how they contribute to Fairview's mission, strategy and sustainability. The review isn't focused on St. Joe's, but the hospital's future will be in the mix.

"What we're looking at is: What can we do, what can we offer at St. Joe's in order to both meet the community need, and also make it financially sustainable," he said. "I'll be able to say a lot more six months from now."

Sisters with the religious order that founded St. Joe's raised concerns last year about a proposal to expand nearby Regions Hospital in St. Paul, for fear it would pull patients from St. Joe's and potentially prompt Fairview to close the hospital. Batson said it's too soon to say what sort of impact St. Joe's is seeing from the Regions plan, which stretches over many years.

Late last year, Fairview, the University of Minnesota and University of Minnesota Physicians reached a new agreement to continue joint operations of patient-care services. Among other things, Fairview runs the University of Minnesota Medical Center in Minneapolis, and they both contributed to a new ambulatory care center on the U's East Bank campus.

As part of the new agreement, Fairview is providing more academic support to the University of Minnesota Medical School, including $40 million this year, $45 million in 2020 and $50 million in each of the following two years. There's also an agreement to further integrate clinical operations.

"The implementation costs of the joint clinical enterprise will be significant, and a lot of the benefits in terms of both growth in services and also rationalization of cost structure we won't see until future years," Batson said.

Fairview plans on launching the "M Health Fairview" brand during the summer and fall, Batson said.

Realigning operations around service lines rather than geography, he said, is meant to provide "really good continuity across episodes of care for our patients." That fits with a goal of more "connected care," Batson said, through something called the Health Transformation Center, the first phase of which Fairview expects to launch in June.

"The Health Transformation Center will develop a single point of contact for customers to simplify all interactions with the system," Fairview said in a financial statement. "It will connect patients to their health journey in convenient, relevant and simple ways, intervening earlier to improve health outcomes."

Christopher Snowbeck • 612-673-4744