Fairview Health Services lost nearly $133 million last year amid COVID challenges

Surges of COVID-19 patients and difficulty staffing hospitals and clinics drove operating losses last year at Fairview Health Services, marking the third consecutive year when the Minneapolis-based nonprofit lost more than $100 million on operations.

Fairview, one of Minnesota's largest health systems, saw some improvement in financial performance during 2021 compared with the first year of the pandemic, but it relied once again on investment income and government aid to close budget gaps.

"We obviously have a commitment to eliminating the losses and getting back to positive net income and positive operating cash flow, because that's necessary in order to invest in the mission and invest in the care system," said Hayes Batson, Fairview's chief financial officer, in an interview.

Nearby rivals Allina Health System and HealthPartners have reported in recent weeks stronger rebounds from an industrywide revenue slump in 2020. Each health system posted more than $100 million in operating income last year.

In a filing this week with bondholders, Fairview said its health care operations in 2021 lost $132.6 million on about $6.4 billion of revenue. In 2020, the health system posted an operating loss of $215.9 million on revenue of $6.12 billion

Fairview drew on $71 million in federal aid to help with the COVID-19 response last year, compared with $165.7 million in emergency funding the previous year.

After factoring in investment income, Fairview last year posted net income of $31.2 million — better than a loss of $20.1 million in 2020.

"Because of our commitment to the communities we serve, we have leaned into places where reimbursement is low but the need is high," Batson said in a statement. "We have cared for a large share of COVID patients throughout the pandemic, we take on more inpatient mental health than any other system in the region and we support the academic mission of the University of Minnesota."

Fairview Health Services is one of the state's largest nonprofit groups with dozens of clinics and hospitals, including the University of Minnesota Medical Center in Minneapolis and Fairview Southdale in Edina.

Fairview markets clinic and hospital services in conjunction with the U under the brand M Health Fairview.

In 2017, Fairview became the largest hospital system in the Twin Cities by merging with HealthEast, a health system based in St. Paul that historically had relatively weak financial performance. Over the past 18 months, Fairview has significantly scaled back services at St. Joseph's Hospital and closed Bethesda Hospital — two former HealthEast facilities in St. Paul — over financial concerns.

In 2019, Fairview pinned its hopes for growth on an expanded relationship with the U that included a significant increase in financial support for the university and its physicians. But the pandemic significantly slowed plans to grow specialty services that otherwise should have been generating positive financial returns, Batson said.

The pandemic has brought financial challenges, as well. Fairview officials say that seriously ill COVID-19 patients bring less revenue to hospitals than other patients requiring intensive care.

Pandemic stresses drove burnout and retirements among health care workers, leaving Fairview struggling to fill shifts in the second half of 2021. At times, the health system didn't have enough staff to satisfy patient demands for non-COVID care.

"Now that our COVID census has dropped, we are opening back up very quickly and we're focused on making sure that we keep all of our hospitals and clinics as fully staffed as possible — engaging and retaining the employees that we have, making sure that we are really creating a great environment and telling a strong story in recruiting new employees," Batson said in an interview.

"When we do that, it really helps our employees, from a burnout perspective," he added. "Folks don't want to work large amounts of overtime on a continuous basis. … It also helps us financially because it's much more expensive if we're having to use a lot of premium pay and temporary staff."

In March, Fairview sold its 25% stake in Maple Grove Hospital to Robbinsdale-based North Memorial Health. Last August, the health system sold PreferredOne, its health insurance business, to Minnetonka-based UnitedHealthcare. And in the fall of 2020, Fairview sold 80% of its hospice and home-care business to a Texas company for $53.6 million.

Beyond hospitals and clinics, Fairview also runs a growing pharmacy operation that in 2021 generated about $1.5 billion in revenue — more than 20% of total revenue for the health system. Pharmacy operations typically have a higher profit margin, Batson said, than hospitals.

Fairview Health Services employs about 34,000 people.