Dive Brief

Cleveland Clinic’s Financial Performance

Cleveland Clinic concluded the quarter ending September 30 on a positive note, achieving a remarkable increase in operating income of over 375% year over year, totaling $206.2 million. The organization reported total revenue of $4.5 billion, primarily driven by increased patient volumes, a strong demand for outpatient services, and beneficial Medicare Advantage delegated premium and risk agreements that commenced at the beginning of the year.

Challenges with Rising Costs

Despite these gains, the Ohio-based academic medical center faces challenges similar to many of its peers, as operating expenses rose by 10.2% year over year, reaching $4.1 billion. This increase is attributed to inflation and a rise in patient volumes, which have led to higher spending on labor and pharmaceuticals.

Dive Insight

Patient Volume Growth

Cleveland Clinic experienced a 2.1% increase in inpatient admissions, with patient days rising by 3.4% and surgical cases growing by 4% year over year. While emergency department visits remained relatively stable, the number of outpatient encounters continued to rise, enhancing the case mix.

Medicare Advantage Agreements

The clinic has also entered into two-year delegated-risk agreements with two national Medicare Advantage insurers. These agreements grant the clinic responsibility for care coordination and population health management for specific Medicare Advantage members. Under these arrangements, insurers allocate a percentage of the premium received from the Centers for Medicare & Medicaid Services (CMS) to the Clinic as “Delegated Premium,” which is utilized to cover medical costs and administrative expenses. If medical claims fall below the delegated premium, both the clinic and insurers share the proceeds; conversely, if claims exceed the premium, they share the costs. Cleveland Clinic reports that these agreements have been a significant revenue driver for the organization and have helped offset rising costs.

Management’s Cost Control Measures

Management indicated in a financial report that the growth in personnel costs has stabilized compared to previous years. However, labor costs remain the largest expense category for the organization, totaling $2.3 billion for the quarter. The management stated, “The System continues to implement cost reduction and efficiency initiatives to appropriately capture the scale-synergy opportunities across its global enterprise and to develop a lean cost structure that is aligned with patients served.”

Industry Context

Cleveland Clinic is among the latest nonprofit health systems to emphasize expense management as a critical focus. Other organizations, such as CommonSpirit Health and Kaiser Permanente, have similarly highlighted cost pressures in their recent earnings reports. In contrast, CommonSpirit has initiated a comprehensive transformation project to address rising costs.

Financial Position

At the end of the quarter, Cleveland Clinic reported $1.1 billion in cash and cash equivalents, alongside $5.1 billion in long-term debt.