Mayo Clinic income steady despite health record costs

Mayo Clinic's operating income held steady in 2018 despite higher expenses with the switch to a new computer system for electronic health records at its largest medical centers.

The Rochester-based clinic released 2018 financial results on Tuesday that featured operating income of $706 million, comparable to the 2017 earnings, on $12.6 billion in revenue.

Over the last several years, Mayo has been planning for a new electronic health record as part of a $1.5 billion technology upgrade. Last year, the transition to a new health record system took place at Mayo's medical centers in Rochester, Arizona and Florida, prompting the clinic to reduce the volume of scheduled medical services starting about a week before the switch and for several weeks afterward.

"That's probably worth about $50 million in revenue," said Dennis Dahlen, chief financial officer at Mayo Clinic, in an interview. "In the overall scheme of things, it's not that material, but there was a footprint on revenue from implementation."

With about 65,000 employees overall, Mayo is a nonprofit that operates hospitals and clinics in five states. Last year, the clinic treated more than 1.2 million patients.

In 2017, Mayo started introducing at some clinics and hospitals in Minnesota its new electronic health record, which captures information on a patient's medical history including medications, allergies and health issues. The clinic has used electronic records for years, but the new unified system was meant to allow for easier updates, particularly for information tools in the system plus computer alerts to clinicians of potential problems.

The new system went live in Rochester in May and in Arizona and Florida in November.

The financial report released Tuesday shows that medical services provided the vast majority of revenue at Mayo Clinic last year at $10.6 billion, up 6.8 percent compared with 2017.

Mayo's operations in the Midwest including Iowa, Minnesota and Wisconsin accounted for most of the medical service revenue ($7.38 billion), but the growth rate was highest at Mayo's southwest U.S. operations (8 percent).

Mayo is in the process of an expansion at its hospital in Phoenix that will roughly double the size of the campus, Dahlen said. The clinic continues to build out its St. Marys campus in Rochester, he said, adding that large projects are in the works in Mankato, La Crosse, Wis., and Eau Claire, Wis.

Overall, revenue growth at Mayo Clinic slowed between 2017 and 2018, due in part to a pullback from state government and commercial accounts by Mayo Clinic's HMO business in Wisconsin. The clinic said in the second half of 2017 that it would start winding down the HMO's operations.

In 2018, the clinic also saw a slight increase in the share of patients covered by government health insurance programs, which generate less revenue.

For many years, Mayo Clinic has operated a large laboratory testing business that's used by health care providers across the country. The lab, plus a growing list of operations and investments outside of the core hospital and clinic business, collectively generated $1.3 billion in revenue last year, up nearly 9 percent from 2017, the clinic said. Mayo doesn't disclose income figures for these "diversified" operations.

"We expect that a greater share of our looking-forward capital investment will be in transforming investments around new data platforms, diversified revenue sources, high-value opportunities in the space of startups and innovation," Dahlen said.

In 2018, Mayo said it contributed $339 million to its employee pension plan and allocated more than $724 million for capital projects.

Benefactors contributed $504 million to Mayo Clinic last year, about 19 percent more than the previous year. Net income at the clinic fell significantly, however, due to weak investment returns.

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