ROCHESTER, Minn. -- Mayo Clinic is not just faced with an enormous health crisis. Now, there is an economic crisis, too -- very likely the biggest such challenge Mayo has faced since the Great Depression.
Income has plummeted as Mayo has turned its attention from regular business to the worldwide COVID-19 pandemic. Today, the clinic is rolling out a plan of spending reductions, including payroll cuts, that will touch many of Mayo's 70,000 employees across all of its sites, including Mayo Clinic Health System sites and the campuses in Rochester, Florida and Arizona.
The plan is designed to bring down a $3 billion loss that financial projections show would occur by year-end without any adjustments, and to do it without lowering the quality of care, research and education Mayo provides. No layoffs are planned.
"We're committed to the well-being of our staff," said Jeff Bolton, Mayo's chief administrative officer. "We're going to make some difficult decisions and do it with compassion."
The largest portion of the savings, about $1.4 billion, will be achieved through payroll reductions. Mayo's executive leadership will take the largest cuts in percentage terms, 20 percent, starting this month.
Those cuts will be followed in May, after the expiration of a pay protection agreement, by cuts to salaries for senior managers (15 percent) and other salaried employees (7 percent). Those reductions will be effective through Dec. 31.
Hourly employees -- those "least able to absorb pay reductions," Bolton said -- will see their pay rates maintained at current levels. But some hourly employees will be subject to furloughs. There are "no details as to the number of people or length of time at this point," Bolton said. "We're trying to determine exactly where those will occur."
A variety of scenarios are being considered, potentially involving voluntary or involuntary furloughs, said a Mayo Clinic spokeswoman.
Mayo will maintain pension and health benefits for all employees who currently receive them. In addition, Mayo will pick up employees' portions of their health care premiums.
For employees who need help with benefits or other advice, Mayo is educating supervisors and establishing a call center to answer questions.
The pay reductions and furloughs come at a time when Mayo's personnel -- physicians, staff members and scientists -- have "really stepped up," Bolton said. Mayo has established itself as a leader in the response to the pandemic, most recently in the announcement that it will develop a plasma-based treatment for COVID-19.
The remaining $1.6 billion of the cost reductions will be accounted for under two categories. Some $700 million will be saved by decisions already made: instituting a hiring freeze, releasing contract and supplemental employees, terminating many of Mayo's service contracts, and pausing construction projects and capital equipment purchases that are not critical for patient care or safety.
Examples of projects being shelved for now include a planned parking garage at Discovery Square and an expansion that will add four floors of clinical space to the Gonda Building.
The last $900 million will be soaked up by financial reserves. That's a sum greater than the record levels of operating financial margin Mayo recorded each of the past two fiscal years, about $700 million each year.
Mayo Clinic maintains plans for financial emergencies, but the scale of the current crisis is "a lot more significant than you would typically plan for," Bolton said.
The onset of the losses came dramatically, with the clinic slipping from normal financial performance for the first three weeks of March before losing $162 million in just the fourth week of March, Bolton said.
Today, he said, hospitals on the Rochester campus are at 35 to 40 percent capacity, and surgical volume is at 25 to 30 percent of the level that was expected. About 60 percent of Mayo Clinic's business comes from elective procedures of the kind that were placed on hold in anticipation of the pandemic's arrival here.
The occupancy and activity numbers put the current crisis in the same ballpark as the Great Depression, when Mayo Clinic's patient volume was about 40 percent of then-normal levels and about one-quarter of patients couldn't afford to pay for their care, Bolton said. Mayo's staff took pay cuts at that time, too.
"We are confident that we'll come out of this together as a Mayo team, and stronger," he said.
The outlook calls for a "significant increase in traditional practice" in this year's fourth quarter, beginning Oct. 1, Bolton said. "At that point, we will be staffing back up," he said.
But if the pandemic persists, as some experts fear it might?
Mayo also is planning strategies for a "W," or "double dip" scenario, where COVID-19 runs rampant again, as well as an "L" scenario involving a prolonged recession and less traveler demand for Mayo's health care services, Bolton said.