Fairview Health Services sees losses grow with COVID-19

A COVID-19 surge last spring followed by a resurgence in November drove operating losses last year at Fairview Health Services as the Minneapolis-based health system saw patients delay care amid diminished demand for nonpandemic services.

Like other health care providers, Fairview curtailed nonemergency services to preserve resources for pandemic patients last year. Overall, patient registrations for outpatient services slipped by 21%, according to a financial statement released this week, while inpatient admissions were off by 11%.

A greater share of COVID-19 patients are insured by lower-paying government health plans compared with patients who undergo the procedures that were delayed, said Hayes Batson, the chief financial officer at Fairview. The pandemic also came at a time, he said, when Fairview expected to start seeing the revenue benefits of an expanded partnership with the University of Minnesota and its physician group.

"The main driver was that we saw significantly reduced volumes in both our hospitals and our clinics," Batson said.

"It was a combination of folks delaying care that they could delay, us redirecting resources to focus on our COVID patients — and so making some tough decisions there," he said. "It really led to a significant diminution of revenue."

Fairview Health Services is one of the state's largest nonprofit groups with more than 34,000 employees. Under the brand M Health Fairview, the health system operates 80 primary- and specialty-care clinics as well as nine hospitals including University of Minnesota Medical Center in Minneapolis and Fairview Southdale Hospital in Edina.

Last year, Fairview posted an operating loss of $215.9 million on revenue of $6.12 billion. The results were worse than 2019, when the health system saw a smaller loss of $96.2 million on about $6 billion of revenue.

The losses in 2020 came despite growth in Fairview's specialty pharmacy business, Batson said, as well as its PreferredOne health plans. The health system also benefited from one-time factors.

In the fall, Fairview sold 80% of its hospice and home-care business to a Texas company for $53.6 million. Like other health systems last year, Fairview received significant federal and state grant funding — $165.7 million overall — to help absorb financial hits from the pandemic.

"The losses would have been much deeper without that federal and state support," Batson said.

In 2018, Fairview negotiated changes to its long-standing affiliation agreement with the U and University of Minnesota Physicians.

The impact in 2019 and 2020 has been significantly more expense, Batson said, particularly through a services agreement through which the physician group is hiring more doctors and developing specialized services for complex patients.

The payoff from the investments was expected to show in a more substantial way last year, but "COVID changed our trajectory and plans there," Batson said.

"We are starting to see some volumes and growth coming back in a significant way over the past month or so," he said. "It's probably too early to tell whether it's a durable trend or whether it's just some pent-up demand because people deferred a lot of services."

Financial challenges last year contributed to Fairview's decision to close Bethesda Hospital in St. Paul, which had been converted for treatment of COVID-19 patients, as well as 16 clinics in Minnesota and western Wisconsin. The moves affected 900 jobs, although Fairview said in its financial statement this week that 550 workers found employment elsewhere within the health system.

Fairview now is in the process of winding down inpatient care for COVID-19 patients at St. Joseph's Hospital in St. Paul. The move will cut 325 jobs, but workers could shift into some of Fairview's 1,700 open positions. The health system previously closed the emergency room and other inpatient services at St. Joseph's, which will still provide inpatient psychiatric care and long-term acute care beds.

The moves should help financial results, Batson said, since Fairview has consolidated services for efficiency.

"We still face headwinds this year, but certainly that will contribute to getting us back to where we need to be," he said.

Christopher Snowbeck • 612-673-4744