Rebecca
Pifer @RebeccaMPifer Nov. 19, 2019
Dive Brief:
- CommonSpirit
Health reported an operating loss of $227 million in the first quarter of
fiscal year 2020 — a loss four times the size of the $56 million loss
during the prior-year period on a pro-forma basis — as the nine-month-old
nonprofit health system struggles to integrate Dignity Health and Catholic
Health Initiatives into one organization.
- Chicago-based
CommonSpirit, which boasts 142 hospitals spanning 21 states, saw operating
revenue of $7.2 billion in the quarter ending Sept. 30,
largely flat year over year. The system formed Feb. 1 blamed the steep
loss in the quarter on not having recognized any California provider fee
revenue, but it expects CMS approval on those state funds in spring 2020.
Operating expenses also climbed in the quarter.
- CommonSpirit's
earnings before interest, taxes, depreciation and amortization was $246
million, down more than 40% from the first quarter 2019, where it saw $416
million in earnings.
Dive Insight:
Despite
CommonSpirit's blame of its steep operating loss on the provider fee funds, the
health system estimates its operating loss with the funds would have totaled
$119 million — still roughly double its operating loss year over year on a pro
forma basis. With the revenue from supplemental Medi-Cal payments and state
grants, it would have reported an estimated EBITDA of $354 million, a 15%
decline year over year.
Operating
expenses spiked in the quarter as well, with salaries and benefits climbing
$166 million or almost 5% compared to the same period last year and supply
costs increasing by $98 million or more than 9%.
CommonSpirit
reported a net loss of $259 million in the recently ended quarter, compared
with a $207 million profit for the same quarter last year.
The system saw
stable acute admissions year over year of more than 208,000 and adjusted
admissions up 2.3% to more than 419,000. Outpatient visits were a driver of
volume, climbing 6% year over year to 6.6 million in the quarter. Gross
outpatient revenue accounted for 50.4% of the total gross patient services
revenue, up slightly from 49.3% in the first quarter of last year.
The system's
facilities in Texas and Arizona saw the greatest jump in adjusted admissions,
rising 6.7% and 5.7%, respectively. The Southwest, meanwhile, saw a 1.1%
decrease in adjusted admissions compared to same period last year.
"We know
we have work to do to improve our operations, and we’re pleased with our
progress given the complexities of bringing together two established health
systems," Daniel Morissette, the organization’s senior executive vice
president and chief financial officer, said in a statement.
CommonSpirit
hopes to save roughly $2 billion through streamlined operations and internal
restructuring over the next four years. The system projects half of savings
will stem from merger-related improvements and the other half from performance
improvement as it settles into one cohesive operation across its more than 700
care locations, including three academic health centers and 31 critical access
facilities.
Its long-term
financial goals include achieving an 8% operating margin, achieving and
maintaining days' cash on hand of 150 days and a debt to capitalization ratio
of 45% or less by the end of 2023.
Dignity and CHI
treated 20 million combined patients last year. The two companies planned
on solidifying the merger at the end of 2018, but delayed the closing a
month to allow them to finalize combining operations of the $29 billion business.
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