Cleveland Clinic sees $339 million profit in Q2, good for $1.3B in net income this year

Photo: Cleveland Clinic by Douglas Sacha/Getty Images

The Cleveland Clinic saw its net patient service revenue roar back in the second quarter of this year, rising from $1.8 billion in Q2 2020 to $2.7 billion this year – which was a major contributor to an impressive financial performance that saw $3.2 billion in operating revenue and $339 million in operating income for the quarter.

Financial documents from the healthcare powerhouse show that operating revenue is almost $1 billion higher than it was during last year's second quarter, when it posted $2.3 billion. 

That in turn led to strong performance during the first six months of the year, which saw the Cleveland Clinic's revenue grow to $6 billion, a more than 22% increase from the $4.9 billion recorded during the same period in 2020.

When non-investment gains of $853.5 million are factored in, this means the hospital operator – which runs 19 hospitals totaling nearly 5,200 beds – saw net income of $1.3 billion during the first half. This is a dramatic turnaround from the first six months of 2020, when it posted a $554.5 million net loss.

In addition to the net patient service revenue increase, Cleveland Clinic was aided by $162.4 million in provider relief fund grants. 

WHAT'S THE IMPACT?

To achieve these strong financials, Cleveland Clinic implemented a number of cost reduction measures, including restricting travel, suspending annual pay increases for caregivers in 2020, slashing administrative service expenses and other costs, and delaying non-critical capital expenditures, the system said.

Patient volume increases have contributed to the boost in patient revenue, which was severely affected by the COVID-19 pandemic last year as elective procedures were put on hold and outpatient volumes plummeted. Surgical cases increased more than 65%, outpatient evaluation and management visits increased 34.9%, and acute admissions increased 23% during the quarter. Volumes were also up slightly from the same period in 2019.

According to Cleveland Clinic, net patient revenue was also aided by rate increases on managed care contracts that kicked in this year, part of local and national revenue management projects designed to improve patient access.

So far this year, expenses are up around $5.3 billion, a slight uptick from the $4.8 billion recorded during the first six months of 2020 – an increase the health system attributes to the increase in patients combined with increases in supply costs.

Those supply costs comprised the biggest expense increase, growing $52.8 million in the second quarter, a more than 20% increase from 2020. This was partially offset by a $3.4 million decrease in nonmedical supply costs.

Staff salaries and wages grew 13% in Q2 while pharmaceuticals grew 14.7%, also resulting in cost increases.

Operating income during the first half of the year hit $1.3 billion, an about-face from the $554.5 million net loss posted in the first half of 2020.

THE LARGER TREND

The rebound in patient volumes is a trend that's happening nationally, and was predicted by a McKinsey survey published in August that found many U.S. hospitals have returned to 2019 patient volume levels.

In the survey of healthcare leaders at 100 private sector hospitals, the numbers showed that emergency department and inpatient volumes have returned to 2019 levels, though respondents said they expect it to be roughly 5 to 6% higher in 2022. Outpatient and procedural volumes were 3 to 4% above 2019 levels in July, and are expected to be 6 to 8% higher next year.

That tracks with the June Kaufman Hall Flash Report showing that volumes and margins both increased in that month compared to 2020. Patient volumes – outpatient volumes in particular – were up, but hospitals are still operating on narrow margins, the data showed. The median hospital margin index was 2.6% in May, not including federal Coronavirus Aid, Relief and Economic Security Act funding. With the funding, it was 3.5%. The median operating EBITDA margin for the month was 7.2% without CARES and 8% with CARES.

Increasing patient volumes contributed to year-to-date margin increases, especially compared to the low volumes seen with national shutdowns and restrictions on nonurgent procedures in the early months of COVID-19. While some volume metrics remained well below 2019 performance, others came close to pre-pandemic levels. Adjusted discharges were up 9.1% YTD compared to January-May 2020, but fell 7.1% YTD compared to the same period in 2019.

Cleveland Clinic has gotten into the insurance game as of late, partnering with Aetna in August to form a new Accountable Care Organization, with plans to launch a co-branded commercial insurance plan called the Aetna Whole Health-Cleveland Clinic plan.

Under the plan, Aetna members can receive care from the Cleveland Clinic Quality Alliance network of employed and independent community physicians or at any Cleveland Clinic facility. Aetna's commercial plan members will have access to second opinions by Cleveland Clinic for certain conditions.

Cleveland Clinic and Aetna also teamed with IBM in June to create a new blockchain health firm, Avaneer Health, which will be housed in Chicao and work to use blockchain to increase efficiency in healthcare and reduce administrative costs.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com