Mayo Clinic's operating income fell by half last year on rising labor costs

Rising labor costs dampened earnings across Mayo Clinic's health system in 2022 as Minnesota's largest employer confronted staffing problems being felt across the industry.

The Rochester-based nonprofit reported Monday an operating income of $595 million last year — a 50% drop from 2021 when it reported a record $1.2 billion in operating income.

Contract labor costs for supplementary staff, like traveling nurses, rose significantly while the health system also saw inflation in nonlabor costs.

"Contract labor and supplementary workforce needs really did play a part in our lower performance than 2021," said Dennis Dahlen, the clinic's chief financial officer. Despite contract labor and overtime by staff, "we really struggled keeping full capacity on-line for the entire year."

While the staffing situation improved through the year, it both limited full-year revenue growth and added expenses, Dahlen said.

Revenue of $16.29 billion was up about 3.6% — a growth rate that's only about half as much as usual, Dahlen said.

"Part of that is, we couldn't keep everything open to the degree that we're used to keeping things open...," he said. "It's all parts of the care continuum."

Outpatient visits, surgeries and patient days in the hospital were up between 2% and 3% compared with a year-over-year growth rate of 12% to 13% the year before. Hospital admissions fell 4%.

"While hospital admissions were lower than 2021, Mayo Clinic hospitals are operating near capacity, reflected in the increase in patient days," the health system said in a filing with bondholders. "The difference between years is attributable to capacity constraints and the changing mix of hospital patients with longer lengths of stay during 2022."

All told, about 1.4 million patients — comparable to the previous year — sought care across Mayo's network of hospitals and clinics including its largest medical centers in Arizona, Florida and Minnesota.

Patients came from every state in the U.S. and nearly 130 countries. In Rochester, 1.2% of patients came from Canada and other countries, the same percentage as in 2021.

The clinic posted expenses of nearly $15.7 billion. Mayo's operating margin was 3.7%, lower than the 7.7% margin in 2021.

Mayo, which employs more than 76,000 people, says it received more than $1 billion in philanthropic gifts for the fourth consecutive year.

"As we look back on 2022, every day, week and month felt hard," Dahlen said. "But as we stop and just look back on the entire year, we're actually quite pleased both with the financial return and the amount of activity that we were able to sustain, because our volumes did increase. ... We had a lot of staff that worked a lot of extra shifts just to keep ourselves open and available for patients."