Financial rebound at Fairview despite a $189 million operating loss in 2023

Fairview Health Services suffered a fifth straight year of operating losses in 2023, but officials say profitable operations in the fourth quarter are the latest sign of budget recovery at the Minneapolis-based health care system.

Fairview saw improvements toward the end of last year in labor costs and patient discharges to step-down facilities — two issues that hospitals have generally cited as significant financial problems in recent years. Fairview joins two other major health care systems in the state – Minneapolis-based Allina Health and Rochester-based Mayo Clinic – in reporting improvements in these areas, along with better financial results.

With approximately 34,000 employees, Fairview is one of the largest health care providers in the Twin Cities and owns the University of Minnesota Medical Center in Minneapolis. Fairview CEO James Hereford told the Star Tribune in an interview this week that negotiations are continuing on a deal for the U of M to take over Fairview University Hospital.

“We are on track,” Hereford said, without giving details. “We are where we think we need to be to move this towards the September 30 deadline.”

Fairview is Minnesota’s fourth largest nonprofit. It operates nine hospitals, more than 80 primary and specialty care clinics and a number of senior living and long-term care facilities.

For 2023, Fairview posted an operating loss of $189 million on $7.3 billion in revenue, according to financial statements released this week. Between 2019 and 2022, the health care system’s annual operating losses ranged from $96.2 million to $315.4 million.

This series of red ink was preceded by two of Hereford’s signature strategic moves: merging Fairview with the financially weak HealthEast system in 2017 and launching a new affiliation deal with the United States, including the M Health Fairview brand, in late 2018 .

Hereford said the HealthEast deal was good for Fairview as it expanded its operations into the eastern metro, even if it came with short-term merger costs. The M Health Fairview partnership began showing financial success in early 2020, he said, but the pandemic put a halt to growth plans.

“As soon as we signed that deal,” Hereford said, “we shut down the entire economy because of COVID.”

The health care system is on track for much better financial results in 2024, he said, building on momentum from the fourth quarter.

During the final three months of 2023, Fairview posted its first quarterly operating profit since the third quarter of 2020, when financial results were supported by pandemic-related financial relief from the federal government.

Operating income of $25.5 million during Fairview’s fourth quarter last year included nearly $50 million in revenue related to a legal settlement involving a federal program called 340B, which allows hospitals to buy drugs at discounted prices.

University of Minnesota officials have said the acquisition of Fairview University Hospital is one of several steps needed to complete recent improvements in the university’s academic health program, which includes the state’s largest medical school. maintain and expand.

A letter of intent announced in February calls for a definitive sale agreement, to be negotiated by September 30 and approved by Fairview’s board leadership and the U by the end of the year. The U would acquire a 51 stake in the fourth quarter % in the U Hospital, and the rest by the end of 2027.

The medical center complex includes four different facilities, three of which are currently owned by Fairview.

Long-term plans at the U include building a $1 to $2 billion replacement medical center; the high price tag quickly led to discussion about the necessity and urgency of the facility. Hereford said he is not involved in the planning of the new medical center.

The dean of the U.’s medical school told a state task force in January that he was “ashamed what kind of hospital we have in the middle of Minneapolis,” which he contrasted with a new medical center that opened in Duluth last year. Hereford said in the interview: “The academic facilities that we have, that we continue to invest in, are very good facilities. We are getting good results – the best results we have seen for decades.”