Mayo Clinic's operating income jumped 72% in 2019, surpassing $1 billion

Mayo Clinic's operating income topped $1 billion for the first time in 2019 as the Rochester-based health system saw more hospital patients and surgery cases across its primary medical centers in Minnesota, Arizona and Florida.

The earnings figure surged by 72% compared with 2018, an increase fueled by patient demand that looked surprisingly strong compared with the flat or declining inpatient volume being reported at many medical centers.

Mayo says the income will help drive future growth and continued investments in facilities and personnel, yet the profitability also rekindled questions about whether the clinic could stand to lower its prices.

"Volumes kept growing last year. We thought we'd reached a new high, and we kept growing again," said Dennis Dahlen, the Mayo Clinic chief financial officer. "We're doing more transplants than ever and excelling at what it is that Mayo Clinic does really well."

Mayo Clinic is Minnesota's largest employer. The nonprofit group runs hospitals and clinics across five states with a systemwide workforce of about 70,000, including more than 40,000 in Minnesota.

Nonprofit groups are allowed to generate income from operations, much like investor-owned companies generate operating profits. The difference comes in what happens to earnings — for-profit companies can distribute income to shareholders, whereas nonprofit groups retain earnings for operations.

Financial results released Tuesday show that for the year, Mayo attracted revenue of about $13.8 billion and paid expenses of about $12.8 billion, leaving $1.06 billion of income from clinic operations. In 2018, the clinic saw operating earnings of $617 million.

Add investment income to the mix, and Mayo's net income for 2019 was $2.28 billion. The numbers were the first full-year financial results under Dr. Gianrico Farrugia, the Mayo physician who became the clinic's chief executive in January 2019.

"We are leading the necessary changes in health care to benefit people worldwide," Farrugia said in a statement.

In 2019, Mayo treated more than 1.2 million patients, the clinic said, adding they came from every state and more than 130 countries. Hospital inpatient cases were up 2.1% from 2018 while surgeries were up 3.6%.

"In an environment where inpatient utilization, inpatient volume has been either flat or declining, they're reporting … modest increases," said Allan Baumgarten, an independent health care analyst in St. Louis Park. "I think it's a very good report."

But Brad Arends, a benefits consultant in Albert Lea, wasn't celebrating the numbers Tuesday. Over the past two years, Mayo has been closing hospital services in Albert Lea, prompting a nonprofit group in the community to recruit a new clinic operator from Iowa.

Arends questioned why the closures in Albert Lea were necessary, given Mayo's strong financial results. For years, he added, prices at Mayo have been driving high health insurance costs in the region. For example, the Iowa hospital bringing services to Albert Lea offers hip replacements for $25,432, Arends said, compared with the Mayo Clinic price of $47,500.

"I can't help but look at [Mayo's financial results] and say: OK, and who has the highest health insurance rates in Minnesota? South-central and southeastern Minnesotans," Arends said. "How can our employers afford this?"

Dahlen said he couldn't comment on the individual price comparisons, but asserted that service rates at the clinic "are not universally high." He argued that the clinic provides better value, as well, because patients often use fewer units of service, resulting in a lower total cost of care. An annual state report on total cost of care suggests that Mayo is actually an expensive provider on this basis, but the clinic has long argued that the report's methodology doesn't account for Mayo's uniquely complex group of patients.

Financial considerations weren't the primary driver in Mayo's decision to close some services in Albert Lea and a few other small communities, Dahlen said. Instead, Mayo has been closing services in places where it struggles to recruit staff and maintain high quality, he said, adding: "We could afford to keep those units open if it was the right thing to do."

Mayo has high fixed costs, Dahlen said, so the surprising increases in patient demand brought revenue gains far surpassing the additional expense.

"The good news for the region, for Mayo Clinic and for the state, is that we're facing the next decade with a lot of momentum," he added. "All the moneys we're making are being plowed back into education and research and advancing medical practice and, at the same time, funding a very large workforce."

Mayo Clinic paid a total of $8.29 billion in salary and benefits last year, executives said Tuesday, and made a special $200 million payment to the employee pension fund. Philanthropic benefactors contributed $549 million in 2019, up 9% over the previous year.

Mayo announced last year the creation of a for-profit joint venture to operate a "mega-hospital" in United Arab Emirates. A financial statement released Tuesday said the clinic is investing $50 million in the project.

Uncompensated care at the clinic was $590 million in 2019, basically flat compared with the previous year. The figure includes charity care plus the shortfall between what state Medicaid programs pay compared with the clinic's costs of caring for those patients. A Star Tribune analysis shows uncompensated care was down slightly as a percentage of total expenses from 4.9% in 2018 to 4.6% in 2019.

The clinic's endowment ended 2019 with a value of just over $5 billion, up 11% over the previous year.

Future capital spending includes $233 million for an expanded cancer center at its Jacksonville, Fla., site and $91 million for a new research and education center in Phoenix. Mayo also plans to spend $85 million on a new research center in Rochester.

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