Facing $3B shortfall, Mayo Clinic announces pay cuts for more than 20K workers

Facing an economic crisis not seen in decades, Mayo Clinic announced Friday it is instituting temporary pay cuts for more than 20,000 workers.

That number represents about a third of its total staff — and includes physicians, allied health staff and administrative workers.

Temporary furloughs of some staff are also planned, though Mayo says it’s still working through the details on what positions will be affected.

The moves are a result of Mayo’s decision to postpone elective and non-emergency procedures amid the global Covid-19 pandemic. The Rochester-based health system says its revenue has dropped by $150 million a week.

“The health care crisis is turning into a financial crisis outside Mayo Clinic, but we’re not immune to that,” Jeff Bolton, Mayo’s chief administrative officer, said in an interview with the Star Tribune.

In a statement posted to its website, the Clinic called the decision to proactively postpone elective patient care “the right one,” but noted that doing so eliminated much of its revenue — while at the same time, it continues to make “critical investments” on testing and research related to the pandemic.

“Mayo Clinic is taking necessary steps to reduce expenses, but additional measures are needed to ensure that we can emerge from this situation in a stable position,” the statement reads.

The substantial cuts are a remarkable turn of events for Mayo, which only two months ago released numbers showing it had topped $1 billion in net operating income for the first time in 2019. In fact, the Clinic’s financial position had been so strong that last December its leadership announced it would be awarding $500 end-of-the-year bonuses to most employees.

Now, faced with the ongoing effects of the coronavirus, Mayo is seeing a fraction of the patients it had expected — putting the health system on a path toward losing $3 billion in revenue this year.

Where cuts are being made

The Clinic says a bulk of the spending reductions will come from employee pay cuts and furloughs for some hourly employees.

Both Bolton and CEO Dr. Gianrico Farrugia will take salary reductions of 20 percent, while those reporting to the two leaders will take a 15 percent pay cut. Doctors and senior administrators will take a 10 percent cut; other salaried health staff will see their paychecks decrease 7 percent. Pay rates for hourly workers — including most nurses — will not be affected.

An additional $700 million will be slashed from the budget as a result of hiring freezes, the release of supplemental and contract workers, and delays to some capital expenditures and construction projects.

Bolton also confirmed that the Clinic plans to use $900 million from its financial reserves to shore up this year’s budget.

The tough measures come as health systems across the country look to dial back spending in the midst of what is at once one of the most significant health and economic emergencies in modern times.

In an interview with MPR News, however, Bolton remained optimistic that Mayo would be able to bounce back strong by the end of the year — though he cautioned that will depend on how long the pandemic goes on for.

“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,” Bolton told the public radio station. “There were a lot of actions that were very similar to the ones we are taking today.”

Sean Baker is a Rochester journalist and the founder of Med City Beat.

Cover photo: Mayo Clinic’s Gonda Building / Flickr