Days after Cleveland Clinic laid off more than 100 employees, about 3% of its administrative workforce, the hospital system announced it fell short of profit expectations last year because of unexpected high costs.
Speaking to employees in his annual State of the Clinic address Monday, President and CEO Dr. Tom Mihaljevic said the system did make a profit last year. But despite caring for a record number of patients, the system was 1% short of its expectation.
He said that was because the Clinic received smaller than usual drug discounts, cared for a rising number of uninsured patients, and absorbed surging malpractice insurance premiums.
Mihaljevic said it took the system by surprise when drug companies rolled back some discounts they had been giving to the Clinic through a federal program.
"When we receive those drugs with discounted prices, some of those discounts were reduced in 2024... which creates a negative financial impact on us," he said.
The U.S. Senate and the pharmaceutical industry have called out the Clinic in recent years for exploiting a loophole that allowed participation in the 340B drug discount program, which was originally created to support rural hospitals.
Cleveland Clinic has said it meets the programs’ requirements through serving Medicaid-insured patients, the Amish population and rural areas.
The Clinic also absorbed $370 million in expenses last year to cover uninsured patients, an increase of 40%, compared to the year before, Mihaljevic said.
He added the main reason was that many patients didn’t re-enroll in government health care after the COVID-19 auto-enrollment period ended.
“Charity care increase here in Cleveland is a regional phenomenon, not a national phenomenon," Mihaljevic said. "We have been trying to facilitate and help (patients) enroll into Medicaid programs, but that is a process that requires effort and time.”
He didn’t comment on why non-enrollment was higher in Northeast Ohio than elsewhere. But Mihaljevic said the Clinic added those costs to its community benefits expenses, which are required to keep its tax-exempt status.
The hospital system said last year that more than half its community benefit expenses went toward the unpaid costs of care.
Mihaljevic said he does not anticipate the need for additional layoffs in 2025, adding the system's goal is to pursue innovation and efficiency through new technology.
"The pressures that we are, that everybody's feeling financially is just simply not sustainable," Mihaljevic said. "We have to continue to look in every way possible to continue to find more efficient ways to provide care to our patients and to reduce our cost."
