Mayo Clinic's Medicaid costs and workforce growth undercut 2016 profits

Dive Brief:

  • Mayo Clinic’s operating income fell 9.8% to $475 million in 2016, down from $526 million the previous year, due to workforce expansion and uncompensated care to Medicaid patients, the Post Bulletin reported.
  • Losses on Medicaid-covered patients rose from $476 million in 2015 to $546 million last year, while the clinic grew its workforce by 5% to 63,078 employees in 2016. The clinic’s operating margin dropped to 4.3% last year — down from 5.1% in 2015 and 8.5% in 2014.
  • Kedrick Adkins Jr., CFO, attributed the bump in Medicaid losses to more Minnesotans qualifying for Medicaid under the state’s expansion of benefits under the ACA.

Dive Insight:

While Medicaid losses may increase, Mayo Clinic is finding it takes money to make money.

Labor costs may have increased, but Mayo Clinic’s revenue increased from $10.3 billion in 2015 to $10.9 billion last year and donations totaled $296 million, up from $277 and $288 in 2015 and 2014, respectively.

The year’s results reflect investment in facilities, education and technology, including a new EHR system and $9.5 million in the Destination Medical Center initiative. Overall, capital spending totaled more than $600 million, in 2016, the same as in 2015. 

Such investments in labor and tech and facilities should largely be a one-and-done upfront cost. Sure, there will be maintenance and continued salary bumps but the idea is to be able to run a more efficient facility. If revenues continue to grow and upfront costs level out, then Mayo Clinic shouldn't have a hard time justifying those upfront costs.

The American Hospital Association found in December 2016 that the percentage of total expenses for uncompensated care was the lowest in 2015 it's been since 1990 (4.2%). Since the implementation of the ACA, the percentage rose up to 6.1% in 2012 from 5.8% in 2010, falling after 2012. AHA doesn't attribute this rise and fall to any event but it does show a decline (after a rise) in the percentage of uncompensated care after the ACA was passed. However, that could change with the repeal and replacement of the ACA, which provided coverage for millions of new patients and fueled the move to value-based care and population health management.

Filed Under: Finance Hospital Administration
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