Fairview sees financial upturn despite $189M operating loss last year

Fairview Health Services saw a fifth consecutive year of operating losses during 2023, but officials say profitable operations during the fourth quarter are the latest sign of fiscal recovery at the Minneapolis-based health system.

Fairview saw improvement towards the end of last year with labor costs as well as discharging patients to step-down facilities — two issues that hospitals generally have cited as significant financial problems in recent years. Fairview joins two other large health systems in the state — Minneapolis-based Allina Health and Rochester-based Mayo Clinic — in reporting improvements in these areas, along with better financial results.

With some 34,000 employees, Fairview is one of the largest health care providers in the Twin Cities, and owns the University of Minnesota Medical Center in Minneapolis. Fairview CEO James Hereford told the Star Tribune in an interview this year that negotiations continue on a deal for the U of M to acquire the teaching hospital from Fairview.

"We're on track," Hereford said, without offering details. "We're where we believe we need to be, to progress this towards that Sept. 30th deadline."

Fairview is Minnesota's fourth-largest nonprofit group. It operates nine hospitals, more than 80 primary and specialty care clinics and a number of senior living and long-term care facilities.

For 2023, Fairview posted an operating loss of $189 million on $7.3 billion of revenue, according to financial statements released this week. Between 2019 and 2022, the health system's annual operating losses have ranged from $96.2 million to $315.4 million.

This run of red ink was preceded by two of Hereford's signature strategic moves – merging Fairview with the financially-weak HealthEast system in 2017 and launching a new affiliation agreement with the U, including the M Health Fairview brand, in late 2018.

Hereford said the HealthEast deal was good for Fairview because it extended the its operations into the east metro, even if it brought short-term merger costs. The M Health Fairview partnership was starting to bring financial success in early 2020, he said, but the pandemic unended growth plans.

"As soon as we signed that deal," Hereford said, "we shut down the entire economy because of COVID."

The health system is on track for much better financial results in 2024, he said, building on momentum from the fourth quarter.

During the final three months of 2023, Fairview posted its first quarterly operating profit since the third quarter of 2020, when financial results were aided by pandemic-based financial relief from the federal government.

Operating income of $25.5 million during Fairview's fourth quarter last year included nearly $50 million in revenue related to a legal settlement involving a federal program called 340B, which allows hospitals to purchase medications at discounted prices.

University of Minnesota officials have said acquisition of the U teaching hospital from Fairview is one of several steps needed to maintain and extend recent improvements in the university's academic health program, which includes the state's largest medical school.

A letter of intent announced in February calls for a definitive sale agreement to be negotiated by Sept. 30 and approved by board leadership at Fairview and the U by the end of the year. The U would acquire a 51% stake in the U hospital during the fourth quarter, and the remainder by the end of 2027.

The medical center complex includes four distinct facilities, three of which are currently owned by Fairview.

Long-term plans at the U include building a $1 billion-$2 billion replacement medical center; the hefty price tag quickly prompted debate over the need and urgency for the facility. Hereford said he's not involved with planning for the new medical center.

The U's medical school dean told a state task force in January he was "embarrassed what kind of hospital we have in the middle of Minneapolis," which he contrasted with a new medical center that opened last year in Duluth. Hereford said in the interview: "The academic facilities that we have, which we continue to invest in, are very good facilities. We're producing good outcomes — the best outcomes that we've seen for decades."