- Cleveland Clinic reported operating income dropped nearly 24% to $36 million compared to the prior year period, in part due to operating expense growth outpacing revenue growth, according to the consolidated financial statement for the first quarter. The operating margin shrank to 1.4% from 2.2% a year prior.
- But total unrestricted revenue, funds the nonprofit can use for any purpose, increased about 19% to $2.5 billion compared to the first quarter of 2018.
- Total expenses increased 20% to nearly $2.3 billion.
Cleveland Clinic is launching an initiative to rein in expenses, growth of which was fueled by salaries and benefits along with the cost of supplies and pharmaceuticals.
The system will launch an extensive analysis of the cost structure to develop cost management and containment plans, according to its first quarter consolidated financial statement.
Pharmaceutical costs increased nearly $48 million, or 19%, year over year, primarily driven by higher costs and increased utilization in the oncology departments. Supply costs grew due to increased patient volumes.
There was some positive financial news for Cleveland Clinic. The system's net patient service revenue increased nearly 20% in the first quarter thanks to an increase in admissions, surgical cases and management visits. Rate increases from its managed care contracts that took effect in 2019 also helped boost patient revenue.
The makeup of Cleveland Clinic's payer mix has shifted. The system has experienced a decline in its commercial patients but growth among its Medicare patients. About 50% of patient revenue is attributed to Medicare beneficiaries while commercial patients make up 34% of patient revenue, a drop from 38% in the first quarter of 2018.
Another notable nonprofit health system, Kaiser Permanente, reported a substantial increase in its operating income for the first quarter and also reported an increase in patient revenue.