Cleveland Clinic reports slim $21M operating loss, $145M net gain in Q2 2023

Cleveland Clinic dropped to a $21.4 million operating loss (-0.6% operating margin) in the second quarter but notched a $145.2 million bottom line thanks to its investments, according to financial filings for the period ended June 30.

The numbers trim down the slim $32.4 million (0.9% operating margin) of the first quarter and place the nonprofit at a slim $10.9 million year-to-date operating income (0.2% operating margin).

On the other hand, it’s a major improvement over the $183.5 million operating loss (-5.9% operating margin) and nearly $1.1 billion net loss Cleveland Clinic had reported during the same period last year—improvements that management attributed to stronger demand for care and further distance from pandemic disruptions.

Compared to Q2 2022, Cleveland Clinic’s operating revenues increased 14.9% and handily outpaced a 9.2% jump in operating expenses.

The former benefited from an 8.6% year-over-year (YoY) rise in acute admissions, a 6.1% YoY increase in total surgical cases and an 8.9% bump in outpatient evaluation and management visits, per the filing.

“Net patient revenue has also benefited from rate increases on the System’s managed care contracts that became effective in 2023,” management wrote in the filing. “Over the last few years, the System has initiated national, regional and local revenue management projects designed to improve patient access throughout the System while striving to ensure the safety of patients, caregivers and visitors.”

The increase in expense “primarily” came from treating more patients and inflation, the system said.

Salaries, wages and benefits, for instance, increased by 8.9% YoY, though management highlighted “various initiatives to recruit and retain caregivers that has resulted in reduced vacancy and turnover rates in 2023 compared to 2022.

Supply expenses rose by 7.1% YoY and pharmaceutical costs jumped by 22.8% YoY, both of which were attributed to inflation and volumes.

Maybe the standout turnaround from 2022 landed beneath Cleveland Clinic’s nonoperating line. The system reported $158.2 million in investment returns and $166.6 million in net nonoperating gains and losses, whereas during the prior year those respective items had plummeted to losses of $627.5 million and $603.5 million.

Together, Cleveland Clinic now sits at a $480.7 million bottom line gain for the first half of 2023 versus the $1.1 billion net loss of a year prior. As of June 30, cash and cash equivalents dipped by $252 million (29.4%) from Dec. 31 and the system has 318 days of cash on hand.

Cleveland Clinic, which operates 20 hospitals and dozens of other clinical locations in Ohio and beyond, had reported a $211.3 million operating loss and over $1.2 billion in net losses across the entirety of 2022.

In January, CEO and President Tom Mihaljevic, M.D., said the nonprofit was prioritizing hiring efforts to offset labor shortages and would be keeping an eye out for opportunities to reduce expenses. This included a pause on “some” administrative hiring, he said.

The sequential dip in operating income from Q1 to Q2 puts Cleveland Clinic at odds with some of its large nonprofit provider peers. Mayo Clinic, Sutter Health, Mass General Brigham and Kaiser Permanente have each seen their operating performances increase over the course of 2023, thanks in large part to returning patient volumes and revenue gains that have outpaced expenses.