A record year for patient encounters and revenues still left the Cleveland Clinic with a lower-than-expected operating margin, forcing the nonprofit system to cut 3% of its administrative management.
The operating news came in the system’s annual “State of the Clinic” address from CEO and President Tom Mihaljevic, published Monday, while the 114 eliminated roles were reported in press late last week.
Statements to press from the organization stressed that the cuts spanned multiple departments in nonclinical areas and that those affected may apply to other open positions within the Cleveland Clinic or opt to accept a severance package.
“In today’s environment exceptional treatments and services need to be sustainable,” Mihaljevic said during Monday’s prerecorded address. “Every industry finds a way to use resources smarter for better outcomes at lower costs. In healthcare, we have to bring the same enthusiasm for solving illnesses to delivering care in more efficient ways. No one is more capable of this than Cleveland Clinic.”
During its 2024 fiscal year—the full results for which have not yet been made public—Mihaljevic said the system saw 15 million patient encounters and $16 billion of total revenue, which exceeded its projections. The year’s 1.7% operating margin, however, was well below the target of 2.7%.
The executive pointed to “new financial challenges” for the financial underperformance. Specifically, he called out an “unexpected increase in charity care totaling $370 million,” smaller discounts on drug treatments and surging malpractice insurance costs. Accompanying materials also pointed to workforce shortages and inflation.
About 40% of hospitals in the country are currently losing money in the wake of the COVID pandemic, Mihaljevic said. The Cleveland Clinic is “doing well by comparison because of the demand for our services and because we continuously innovate the delivery of care,” he said.
The Cleveland Clinic must find “new ways to generate value and free up resources” if it wants to scale its patient care and investments in research and education, he continued. That push led the system toward the cuts, which Mihaljevic characterized as “efficiencies in how we manage our organization.”
“This type of decision is never easy and we are supporting our administrative managers during their transition,” he said.
The Cleveland Clinic’s 1.7% margin in 2024 is still an improvement over the 0.4% of 2023 and -1.6% of 2022. The organization employs about 83,000 people worldwide.
More broadly, Mihaljevic’s address highlighted a collection of successful care initiatives, such as a Hospital Care at Home program in Florida, and community programs, such as a first-of-its-kind effort that assessed dozens of Cleveland childcare centers for lead in its first year. Also in the spotlight were broadened implementations of AI in sepsis identification, patient-provider messaging and other hospital operations.
Speaking to the Cleveland Clinic’s workforce, the executive commended his team’s response to 2024’s unexpected emergencies—system disruptions during the CrowdStrike outage, facility closures from Hurricane Milton and IV fluid shortages from Hurricane Helene. In response to internal surveying, he said the organization will also be bearing down on job stress and work/life balance, improved communications and workplace safety.
Turnover rate within the Cleveland Clinic is below the healthcare industry’s benchmark while job vacancies are “far below” the national average—both signs the executive attributed to “a workplace culture that values and rewards caregivers with industry-leading benefits and market-appropriate compensation.”
“During this next year and beyond, we will be asked once again to reinvent how care is delivered. As a team, I have no doubts that we will succeed,” Mihaljevic closed.