Rough investments, rising costs push Cleveland Clinic's 9-month losses past $1.5B

An investments-fueled $469.2 million net loss in the third quarter has brought Cleveland Clinic Health System more than $1.5 billion into the red so far this year.

The nonprofit system reported this week operating losses of $28.3 million (-0.9% margin) and $316.3 million (-3.3%) for the third quarter and first nine months of 2022, respectively. These are both down from 2021 quarterly and nine-month operating gains of $148.2 million (4.8% margin) and $549.4 million (6% margin).

Though Cleveland Clinic’s most recent quarter edged closer to even, its operations remain weighed down by reduced volumes and escalating expenses “primarily” tied to personnel costs.

Its bottom line, however, was most heavily impacted by $440.9 million in nonoperating net losses after investment returns fell $681.8 million below the same quarter in 2021. Across the first nine months of the year, those investment losses now total nearly $1.3 billion.

Total operating revenues during the most recent quarter ended Sept. 30 grew 7.7% year over year to $3.3 billion. Net patient service revenue for the quarter increased 6.4%.

Cleveland Clinic wrote that the recovery of patient volumes through the quarter “has been slow as patients served remained below expected levels." Those demand trends plus staffing-related constraints hit the system’s inpatient volumes with acute admissions declining 1% from last year. On the other hand, total surgical cases grew 5.6% while outpatient evaluation and management visits increased by 1.5%.  

The quarter’s 6.4% revenue gain was handily outpaced by a 14.2% ($413.8 million) year over year increase in expenses. Most of the jump was driven by a 16.5% ($276.9 million) rise in salaries, wages and benefits—a common pain point across the industry amid inflation and workforce shortages. The system also saw year-over-year increases in its quarterly supplies (3.7%), pharmaceutical (13.4%), purchased services and fees (11.6%), administrative (42.7%), facilities (16.5%) and insurance (65.7%) expenses.

Cleveland Clinic’s year-to-date operating revenue has now increased 4.1% over last year for $9.5 billion total, again falling short of the 14.5% year-to-date total operating expense increase. Nine-month nonoperating activities have tallied more than $1.2 billion in losses as opposed to last year’s $1.1 billion gain.

Cleveland Clinic’s days of cash on hand has dropped from 431 at the start of the year to 333. It now sits on $12.7 billion in total cash and investments, down from Dec. 31’s $14.8 billion.

The Ohio-based system’s volumes, labor and investments struggle echoes the results of other major nonprofit health systems this past quarter. Numbers so far have ranged from Providence’s $164 million operating loss to Baylor Scott & White’s $257 million.

There’s little indication that systems have found much relief during the year’s last quarter, as an industrywide report released this week by Kaufman Hall suggests gradual margin gains during the third quarter were largely wiped out in October.