Cleveland Clinic expects 2022 operating loss of more than $200M, CEO says

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Cleveland Clinic anticipates an operating loss of more than $200 million for 2022, its president and CEO Dr. Tom Mihaljevic shared during his annual State of the Clinic address.

In the speech Wednesday, Jan. 18, Mihaljevic gave an overview of the Clinic’s achievements of the past year, including in research, growth and patient care.

“In recent years, when I reviewed our accomplishments, we were gripped by winter surges of COVID-19,” said Mihaljevic, also the Morton L. Mandel CEO Chair at Cleveland Clinic. “It is comforting to begin a new year on a healthier footing.”

Looking beyond the pandemic, he said several trends point to disruption in health care as hospitals endure financial losses, gaps in health equity threaten to grow wider, healthcare workers are burned out, retiring early or leaving their careers, and Americans’ health and patient experience have been in decline.

“Today’s challenges are tomorrow’s opportunities to lead,” Mihaljevic said, adding that the system views these through its “care framework” — care for patients, caregivers, the community and the organization.

The expected operating loss of more than $200 million comes on the heels of the Clinic’s strongest financial year in 2021, when the Clinic reported an operating income of $746 million.

“During the pandemic, health care needed to pause services,” Mihaljevic said in his virtual address to the Clinic’s 77,000 caregivers worldwide. “When services resumed, not enough caregivers were available, leading to higher wages and contracted labor. The prices of pharmaceuticals and supplies are rising with inflation.”

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To manage costs, the Clinic is reducing its spending in certain areas, putting some administrative hiring on hold and reducing discretionary expenses. It has also put forward a plan to serve more patients efficiently.

“I have full trust that we will come out of these times even stronger,” he said. “As other organizations struggle to expand, we are growing for the right reasons.”

The Clinic is growing in three ways: organically at its existing facilities, locations and markets; through mergers and acquisitions; and with digital tools such as virtual visits.

Beyond Northeast Ohio, Cleveland Clinic Abu Dhabi’s new cancer center is open; the fifth floor of the Clinic’s Weston Hospital in Florida is serving patients; and Cleveland Clinic London, which opened in March 2022, is serving more patients every month, with a second outpatient facility opening in September.

The Clinic had planned a $1.3 billion capital spend in 2022, but due to supply chain difficulties and labor challenges, the total will be closer to $800 million once the books are closed, Mihaljevic said.

Just like other industries, “we’re entirely dependent upon an ability to receive supplies and an ability to hire people to really execute on our capital projects,” he said, “but our big capital projects in Cleveland, and Northeast Ohio are well underway.”

On the main campus, the expansion of the Cole Eye Institute is under construction, and the Clinic plans to break ground on a new building for the Neurological Institute in May.

Cleveland Clinic Mentor Hospital is slated to open in July. Also this year, the Clinic expects to open a family health center in Middleburg Heights.

At Fairview Hospital, a master plan is being designed to enhance care for patients and caregivers.

The Clinic also plans to start construction in late spring or early summer on new research buildings on its main campus as part of the Cleveland Innovation District, a multi-institution collaboration to create 20,000 jobs and boost research in the city over a decade.

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Annually, Cleveland Clinic reinvested $450 million into research and education, and its 2022 research revenue was $285 million.

Mihaljevic covered several of the Clinic’s ongoing research efforts, including the Cleveland Innovation District and the Discovery Accelerator, which aim to advance health care and technology; the Cleveland Clinic brain study, with the goal of uncovering the origin of brain diseases before symptoms appear; the Global Center for Pathogen & Human Health Research, which is developing vaccines and studying the effect of viruses; and a partnership with IBM to bring artificial intelligence and the first quantum computer to be used in medicine. The Clinic expects IBM Quantum Server to be completed in 2023.

The pandemic’s strain on health care workers continues as many struggle with burnout, retire early or switch careers. Mihaljevic said the Clinic aims to provide the “best benefit package in health care” and is adding creative incentives such as bonuses for nurse referrals to attract new caregivers and reward those it has on staff.

Last year, the Clinic hired more than 1,600 new caregivers who live in the city of Cleveland — the most in a single year. This is part of the Clinic’s commitment to its community and its aspiration to have a workforce as diverse as the patients it serves, Mihaljevic said.

Its other commitments to the community last year include contributing more than $50 million to remove lead paint from Cleveland homes; investing in safe, affordable rental units in the Fairfax neighborhood; addressing food insecurity in partnership with other community organizations; and working to address infant mortality and ensure African-American babies and their mothers have an equal chance at healthy lives.

“We have been able to fulfill our mission for more than 100 years, despite wars, recessions, pandemics and the tragic fire of 1929 on our campus,” he said. “Cleveland Clinic is persistent in good times and in hard times. We stay true to our goals, even when it is most difficult, and have never compromised our care.”

This story first appeared in Crain’s Cleveland Business.

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