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Cleveland Clinic sees lower margin and volume, higher expenses


By Beth Kutscher
Posted: August 18, 2014 - 2:30 pm ET
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The Cleveland Clinic Health System reported its operating margin declined in the second quarter of this year as it faced lower patient volume and higher expenses, particularly from rising pharmaceutical, salary and benefit costs.

The 11-hospital system booked a 4.8% operating margin in the quarter (PDF) compared with an operating margin of 5.5% during the same period in 2013. However, its non-operating gains increased sharply as it realized higher returns on its investments.

In total, the Cleveland Clinic reported a surplus of $235.4 million on revenue of $1.6 billion in the second quarter, compared with a surplus of $110.4 million, also on revenue of $1.6 billion, in the year-ago period.

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The system's inpatient admissions declined 4.7% while observation stays spiked 17.9%—but the combination of the two was flat year-over-year, suggesting that the two-midnight rule is shifting patient care from inpatient to outpatient services.

Outpatient volume increased 4.2% year-over-year, and emergency room visits were up 1.9%.

Medicaid expansion in Ohio helped lower self-pay revenue to 4.8% of the total, compared with 6.2% in the second quarter of last year. However, the system said in an earnings report that some of the coverage gains were cancelled out by a greater number of patients paying their own bills under high-deductible health plans.

The system also ramped up its fundraising efforts in the second quarter, and in June launched “The Power of Every One” campaign to raise $2 billion in donations by its 100th anniversary in 2021. The funds will be used for expansion and renovation projects, training programs, research projects and to develop new healthcare delivery models.

It also signed a June agreement to become a minority owner in Akron (Ohio) General Health System, a three-hospital group. Financial terms were not disclosed, but the Cleveland Clinic said it will make a substantial capital investment in the smaller system.

Follow Beth Kutscher on Twitter: @MHbkutscher


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