Mayo Projects Revenue Decline with Changes in Health Care

CEO John Noseworthy said the Mayo Clinic will likely see a 20 to 40 percent annual revenue decline in the next five years due to cuts in Medicare, the arrival of state-run health exchanges, and other changes facing the health care industry.

The Mayo Clinic expects a 20 to 40 percent annual revenue decline in the next five years due to changes facing the health care industry, CEO John Noseworthy said Wednesday during a news conference call to discuss the organization’s 2012 financial results.
 
Noseworthy said that the government could cut Medicare reimbursements by $600 billion in the coming years, which would reduce payments Mayo receives for the services it provides to Medicare patients. Meanwhile, health plans included in state-run health exchanges being created will likely offer lower reimbursements than private plans, thus reducing how much hospitals get paid, he said.
 
In the face of projected revenue reductions, Mayo has been scaling back some of its programs, Noseworthy said. For example, it announced earlier this month that it will close its Mall of America retail store. Mayo will also not be part of the mega mall’s expansion plans, a decision that comes after years of toying with the idea of establishing a health and wellness clinic there.
 
Meanwhile, Mayo is seeking $585 million in state and city subsidies for a planned $6 billion initiative that will expand its facilities in Rochester and “secure Minnesota’s status as a global medical destination center now and in the future.” A bill proposing a financing plan has been introduced in the Minnesota Legislature, and Noseworthy said it has strong bipartisan support.
 
Mayo’s 2012 revenue grew 6.3 percent to $8.8 billion, but earnings declined 35 percent to $395.4 million as expenses grew 9.6 percent to $8.4 billion.
 
Noseworthy said that he was happy with the results and the decline in profits was expected as the organization made significant investments to brace itself for changes due to health care reform.
 
He touted Mayo’s e-health program—which allows doctors to provide remote health care through online communication—and a recent research initiative with UnitedHealth Group, through which Mayo will mine health data in order to compare, evaluate, and find ways to improve disease treatments and other health procedures. Noseworthy also said that Mayo has been growing its affiliation program, which allows other health providers to use the Mayo name and consult with its physicians; the program started in late 2011 and has since added 14 providers.
 
“Even in a challenging environment, our employees continue to deliver by putting patients first,” Noseworthy said in a statement.
 
Several of the Rochester-based Mayo Clinic’s hospitals are among the 25 largest in the state based on operating revenue, including Saint Marys Hospital, Rochester Methodist Hospital, and Mayo Clinic Health System in Mankato. Mayo is also among the five-largest employers in the state.