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August 21, 2020 01:43 PM

Mayo Clinic's margin slides in Q2, volumes back to normal

Tara Bannow
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    Mayo Clinic's operating income took a hit on lower patient service revenue in the second quarter, but the prominent Minnesota institution still emerged with a strong operating margin.

    Not-for-profit Mayo's operating income fell 49% to $154 million in the quarter on $3.2 billion in revenue in the quarter ended June 30. That works out to a 4.8% operating margin—not quite as strong as its nearly 9% margin in the comparable 2019 period, but still higher than some other not-for-profit health systems that have weathered volume droughts and higher costs during the COVID-19 pandemic.

    Rochester, Minn.-based Mayo wrote in its financial statement that volumes had returned to normal by the end of June after being severely restricted by mandatory procedure suspensions from March to May.

    "The clinic resumed to safely caring for patients facing non-COVID-19 conditions who are in need of the unique and specialized care offered by the clinic," Mayo said. "However, COVID-19 could still negatively affect the operating margins and financial results of the clinic as the duration of the pandemic is unknown."

    Mayo's revenue declined 6% in the quarter year-over-year, from $3.4 billion in the 2019 period. Within that, medical service revenue was down 16%.

    Expenses fell 2% in the quarter year-over-year to $3.1 billion. Within that, salary and benefit expenses—far and away the largest spending category—increased 2.7%, and supply costs were down 12%.

    Mayo said most of the $300 million in savings it generated through a number of cost-cutting measures came from salary reductions for consulting, executive and administrative staff, suspending retirement plan contributions and temporary workforce reductions. Full-time equivalent workers were down by 9,800 in May and 8,600 in June in a workforce of nearly 70,000.

    Mayo received about $303 million in federal stimulus grants in the quarter, of which it recognized $173 million as revenue. The rest was recorded as deferred revenue. Mayo also took in about $915 million in accelerated Medicare payments.

    Mayo wrote that about 90% of its hospitalized COVID-19 patients participate in research studies. The system is the lead site in a federally-funded study into the use of convalescent plasma as a treatment for COVID-19 that has enrolled more than 79,000 people since it began April 3.

    "The findings show plasma is safe and in some patients who received the plasma, virus levels in the blood were reduced or eliminated," Mayo said.

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