How Mayo Clinic Increased Its 2023 Earnings By 82%

Mayo Clinic's approach to workforce management may have been the key to its robust earnings report.

Blowing its 2022 earnings out of the water, Mayo Clinic's recently reported financial results for  2023 that surpassed the industry average and grew about 82% year over year.

On top of that, with a net operating income of $1.1 billion and a 6% operating margin, Mayo has exceeded the typical margin range for non-profits.

Mayo's ability to achieve a 6% operating margin is a significant accomplishment, especially considering the financial challenges that many healthcare organizations have faced in recent years.

In fact, as HealthLeaders previously reported, it was forecasted that the ideal margin range for not-for-profit hospitals will likely reset to 1%-2% in the future, making 6% all the more impressive.

So how did Mayo pull it off?

The system's revenue of $17.9 billion exceeded its expenses of $16.8 billion, resulting in a healthy profit margin that far surpasses the industry average.

One of the key factors contributing to Mayo's financial success in 2023 was its focus on lowering labor costs.

With more than 80,000 employees, the system spent $10.5 billion on salaries and benefits in 2023. By raising salaries and offering a minimum 4% increase in base pay to most employees, Mayo was able to support retention and recruiting efforts, while also adding about 14,000 staff into new roles.

Additionally, the system eliminated approximately $160 million in contract and temporary labor expenses that had weighed down its 2022 results.

As we know, reducing the dependence on contract labor has been a huge focus for CFOs in the last few years, so Mayo’s ability to save $160 million in the process shows the strategy’s importance.

Mayo Clinic's CFO, Dennis Dahlen, highlighted the impact of these efforts, stating that the system has seen a return to pre-pandemic attrition rates and has largely addressed staff shortages.

By reducing labor costs and improving workforce management, the system was able to achieve a more stable financial position in 2023, Dahlen says.

How investments played a role

In addition to cost-saving measures, Mayo also made significant investments in capital expenditures, totaling $1.18 billion in 2023.

Forty-seven percent of these expenditures were allocated to major projects, including expanding its campus in Phoenix, building new hospital bed towers in Wisconsin and Minnesota, and meeting the growing demand for complex care in Florida.

These investments demonstrate the system’s commitment to continued growth and innovation in healthcare delivery.

What it means for CFOs

Mayo Clinic's robust financial results in 2023 have implications for other hospital and health system CFOs who are surely looking to increase their margins too.

As the industry continues to face ongoing challenges, including reimbursement pressures, rising costs, and evolving patient needs, hospitals and health system CFOs must prioritize financial sustainability and operational efficiency; and they key may be in reducing those contract labor costs.