Mayo Clinic sees big jump in 2017 earnings

Mayo Clinic earnings jumped by nearly 50 percent last year as the Rochester-based health care system lost less money on Medicaid patients while benefiting from more philanthropy, strong investment returns and efficiency gains.

The improved financial performance with Medicaid came after Mayo's chief executive encouraged workers to "prioritize" patients with private insurance in certain cases, rather than government insurance programs, according to a Star Tribune report last year.

Mayo officials denied any connection, however, and pointed instead to double-digit jumps in investment income and charitable giving, plus millions in savings from "optimizing" how Mayo's five-state network of clinics and hospitals provides care.

"It's efficiency in a couple of different dimensions," said Dennis Dahlen, the clinic's chief financial officer. "One is trying to reduce the cost of a unit of service. And the other is to be smart about how many units of service ... are used to treat a patient."

For 2017, Mayo Clinic reported net income of $707 million, up 49 percent over the previous year, on $11.99 billion in revenue. Over the past 10 years, Mayo has posted annual net income tallies ranging from a low of $333.2 million in 2009 to a high of $834 million in 2014.

As a nonprofit, Mayo Clinic reinvests income in operations. Current investments include $714 million in capital projects, including the implementation of an electronic health record system that's linked with a new billing system.

Salaries and benefits increased 7 percent in 2017 to $7.3 billion. The clinic contributed $535 million to employee pensions.

"Our earnings are invested in our medical practice, education and research, along with our employees and our communities," Dahlen said in a statement. "It's also vital to invest in the financial security of our staff and to equip them with technology and infrastructure to best serve our patients."

Revenue from philanthropic contributions grew by $76 million, or 47 percent, to $238 million last year. Investment revenue grew by $56 million, or 19 percent, to $350 million.

In recent years, Mayo Clinic has seen a steady increase in its estimated unreimbursed cost of providing services to patients in Medicaid, which is the state-federal health insurance program for low-income Americans.

The annual tallies during the time period grew from about $322 million in 2012 to $546 million in 2016.

In 2017, however, the shortfall shrank by $43 million, or about 8 percent, to $503 million, according to a financial statement released this week.

A Star Tribune story last year quoted an internal message from Mayo Chief Executive Dr. John Noseworthy saying that when patients were presented with comparable nonemergency health problems, the clinic would "prioritize" patients with private insurance over lower-paying government coverage. Mayo Clinic officials denied any connection, however, between Noseworthy's message and the smaller Medicaid loss.

Mayo said there wasn't a policy change to prioritize privately insured patients, and Noseworthy later said he regretted using the word.

Mayo's change in the unpaid portion of Medicaid was affected by the sale last year of its hospital in Waycross, Ga., which had a significant Medicaid population, the clinic said in a statement. In addition, the Medicaid program in Iowa moved enrollees into managed care plans that limited patient movement across state lines, the clinic said.

"More than 53 percent of Mayo's total medical services provided are for government-insured patients," the clinic said in a statement. "We are committed to serving those patients."

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