Allina Health sees income grow with expense control

Demand for medical services still hasn't returned to pre-pandemic norms, yet Allina Health System saw better financial results during the first quarter as the Minneapolis-based operator of hospitals and clinics held the line on expenses.

In 2019, Allina launched an efficiency program that helped the health system care for patients in new ways, such as providing more mental health treatment in outpatient centers for patients who first sought help in emergency rooms. Those efforts accelerated last year with COVID-19 and continued in the first quarter, when Allina grew revenue by 10% as expenses grew by just 3%.

Like other health care systems, Allina in 2020 saw reduced demand as the pandemic forced a temporary shutdown in nonemergency procedures last spring. While Allina saw patient volumes improve in the second half of the year — as well as continued improvement between January and March — the health system is not yet at baseline in terms of demand for health care services.

"I don't think we'll ever be back to 'normal,'" said Ric Magnuson, the chief financial officer at Allina. "Through the pandemic … there's been some good changes for our community — serving care in different ways such as the virtual care, such as moving things to ambulatory [care settings]. That's changed now, and that's good for both the patient and overall health care costs."

Last year, Allina posted a $36.2 million operating loss that would have been much larger without state and federal grants to help hospitals and clinics deal with financial hits from COVID-19. Treatment for pandemic patients provided a new revenue source for hospitals and clinics, but COVID-19 also added new costs at a time when many patients wound up delaying regular care.

Several large hospital operators in Minnesota — Mayo Clinic, Fairview Health Services and HealthPartners — have reported weaker financial results from caring for patients in 2020, although income from other sources offset the COVID-19 hit to varying degrees. At Allina, gains from investments in 2020 transformed the operating loss into net income of $76.1 million.

In a bondholder filing last week, Allina reported operating income of $13.9 million on $1.16 billion in revenue. Investment income pushed total revenue in excess of expenses to $83.3 million during the first quarter.

The numbers show a lingering impact of the pandemic. Emergency rooms across the health system saw just 65,202 visits during the first three months of the year, down significantly from 75,042 ER visits during the first quarter of 2020.

Surgeries, however, were up 8%, including an even higher growth rate for outpatient surgeries. That fits with a strategic goal, Magnuson said, of moving health care out of costlier inpatient facilities when possible.

Allina is building several new outpatient surgery centers in conjunction with a division of Minnetonka-based UnitedHealth Group.

"Any same-day procedure, most notably orthopedic and spine, we've been working to really create opportunity for them to move off-campus," said Lisa Shannon, the Allina chief operating officer.

Medical services provided through virtual visits helped control costs in the quarter. That's also true, Allina says, of a new program to provide some hospital care in patient homes through remote monitoring plus visits from health care professionals. More than 550 patients have enrolled in the Home Hospital Care program thus far.

Allina during the quarter responded to incentives in new contracts with health insurers to streamline care delivery and simplify administrative requirements, officials said. Federal funds helped offset costs in the quarter as Allina ramped up COVID-19 vaccination efforts. So far, Allina has administered 282,769 vaccinations.

"We don't expect to have a full return to pre-pandemic 'normal,'" Allina said in a statement. "While we were exploring ways to bend the cost curve prior to the pandemic, what we experienced in 2020 certainly accelerated those initiatives."

With more than 28,000 employees, Allina operates more than 90 clinics and 11 hospitals, including Abbott Northwestern in Minneapolis and United in St. Paul.