The state’s largest private employer is instituting across-the-board pay cuts and furloughs to shoulder a projected $3 billion loss this year.
Mayo Clinic’s cost-cutting measures follow its decision in mid-March to halt elective surgeries and procedures — a move that was quickly applied statewide as part of Gov. Tim Walz’s executive order to suspend non-critical medical procedures not deemed essential to save a life.
“The decision to eliminate elective surgeries and outpatient visits was the right decision in terms of protecting the safety of our patients and staff, and also preserving limited PPE (personal protective equipment),” said Chief Administrative Officer Jeff Bolton. “But it has led to significant reductions in revenues.”
Bolton said the hospital in Rochester is at about 35 percent of capacity, while capacity in Mayo’s surgery services is at about 25 percent.
“If you go back to the Great Depression, the institution went through a very similar financial crisis, and salaries were reduced during that period of time,” said Bolton. “There were a lot of actions that were very similar to the ones we are taking today.”
The pay and work reductions, which will apply to all employees at Mayo’s campuses in Minnesota, Florida and Arizona, will start in May, and last until the end of the year. Together, Mayo employs more than 63,000 people.
Other hospital systems, including Essentia Health based in Duluth and M Health Fairview based in the Twin Cities, have also cut staff or reduced hours to make up for lost revenue.
Mayo Clinic executives, including CEO Gianrico Farrugia, will take a 20 percent cut starting this month. Physicians and senior administrators will take a 10 percent salary cut, other salaried employees will take a 7 percent reduction, while other workers will be asked to take extended furloughs.
That’s in addition to a hiring freeze, laying off contract employees and halting some construction projects, Bolton said.
Even after these changes, Mayo will face a $900 million shortfall at the end of the year, which will be covered by Mayo’s reserves established over the last decade, Bolton said.
Bolton said cost-cutting measures will not affect the pay rate of hourly workers.
The financial blow of halting elective services comes on the heels of what Mayo officials had described as a “year of remarkable growth.” In 2019, Mayo reported revenue of $13.8 billion, which was up nearly 10 percent from the previous year.
For the first time in Mayo’s history, net operating income topped out at $1 billion.
The pay cuts and furloughs also come in the midst of a massive economic development project in Rochester driven by Mayo Clinic. Destination Medical Center has promised growth in the region’s hospitality and retail sector, but also significant job growth in large part spurred by Mayo’s hiring and investment.
Bolton said that the plan plays out over 20 years, which gives Mayo — and the entire project — time to bounce back.
“With everyone pitching in to address this, we will come out of this strong,” he said. “Our forecast looks at coming back to normal toward the end of the year, and moving into next year continuing in our growth mode.”
Bolton added that Mayo’s ability to rebound after the end of the year will also depend on how long the pandemic lasts, and if a global recession impacts how many patients travel to Mayo for treatment.
Editor’s note: Reporter Catharine Richert is married to a Mayo Clinic physician who will be affected by these pay changes.