A series of adjustments throughout 2020 helped Cleveland Clinic reach its revenue levels of the year prior, but its operating income last year was down significantly, according to the health system's annual financial report.
The $10.6 billion the Clinic reported in revenue for 2020 was actually slightly higher than in 2019, but fell short of the $11.1 billion in top-line revenue the system had budgeted before COVID-19 upended health care and the economy.
The Clinic earned $232 million in operating income, down 40% from 2019.
"Through all of this, the financial strength of the Clinic allowed us to do what we did, serving our patients and our communities, taking care of our caregivers through this," said Steven Glass, the Clinic's chief financial officer.
The postponement of nonessential procedures and then patients' individual decisions to defer care, patient revenues dropped significantly in the first half of the year.
In the first and second quarters of 2020, the Clinic's operating loss was $39.9 million and $201.8 million, respectively.
"We're really focused on how do we make sure that we're available to take care of those patients in a very safe environment for them so that we can make sure, certainly from a diagnostic perspective, we have early identification of diseases and we're making sure that people are managing the chronic diseases that they have," he said.
The Clinic accounts for more than 20% of COVID hospitalizations across Ohio, Glass said, noting that typically the system accounts for about 10% of all admissions in the state.
Inpatient, outpatient and emergency department visits were down significantly in April — anywhere from 20% to 50%. Once nonessential procedures resumed, the Clinic didn't see significant recovery in patient volumes until late summer and early fall, when the variance to budgeted volumes were in the single digits, Glass said.
And then October brought the second surge, which was far worse by number of COVID patients compared to April and May, he said. But in those earlier pandemic months, the Clinic had to carry all of those infrastructure costs while seeing significantly fewer patients, which dropped revenue during that time dramatically.
Though the pandemic meant a lot of increased expenses (screening and testing supplies and infrastructure, personal protective equipment, higher-cost pharmaceuticals), the Clinic was able to absorb a lot of that by cutting discretionary spending where possible. Ultimately, expenses in 2020 totaled $9.6 billion, compared to $9.4 billion the year prior.
"While they may look similar, there's an enormous number of pluses and minus going on across all of those different categories," Glass said.
For example, while deferred care and the postponement of nonessential procedures brought down pharmaceutical costs, COVID-19 rose that total as it brought in much higher-acuity patients requiring with greater utilization of pharmaceuticals, he said.
The Clinic had planned to invest $1 billion in capital throughout 2020 but ended up investing closer to $560 million, largely related to projects already underway or infrastructure and equipment that needed to be replaced, Glass said.
Added funds made available by the government — under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including Provider Relief Funds (PRF) — also supported the Clinic and other health systems through the pandemic. The Clinic received $423.3 million in PRF payments. The Clinic also recognized $67.2 million in Federal Emergency Management Association (FEMA) grant revenue.
The CARES Act also permitted employers to defer payment of their portion of Social Security taxes. As of Dec. 31, 2020, the system deferred payroll tax payments of $172.8 million.
So far, 2021 is off to a challenging start, as the Clinic continues to see lower volumes related to deferral of care, Glass said. The Clinic's budgeted revenue for 2021 is close to $11 billion.
"We're still in this pandemic; we still have a lot of concern by the patient, so we're not seeing that recovery (in patient volumes) that we were hoping," he said. "And a lot of that was driven by the second surge that occurred. Right now, in March, we're starting to see a good recovery of that, moving back hopefully into those single digit variances related to what our planned volumes are, but we also imagine it's going to be a challenging year. It's great to see the vaccine rolling out, but we still have a long ways to go here."