Tara Bannow November 18, 2019
CommonSpirit
Health quadrupled its operating loss in the first quarter of its fiscal 2020 as
the young organization struggles to integrate two health systems covering 21
states.
The Chicago-based
system, formed through the Feb. 1, 2019 merger of Catholic Health Initiatives
and Dignity Health, posted a $227 million operating loss on $7.2 billion in
operating revenue in the quarter, which ended Sept. 30, or a 3.2% negative
operating margin. That's compared with a $56 million loss on $7.1 billion in
revenue in the prior-year period, a 0.8% negative margin.
CommonSpirit
blamed the steep operating loss on not having recognized any California
provider fee revenue during the quarter ended Sept. 30. It wrote that the state
anticipates CMS approval on those funds in spring 2020. Had CommonSpirit
received the same level of provider fee funds in the recently ended quarter as
it did in the first quarter of its fiscal 2019, the health system estimates its
operating loss in the recent quarter would have been $119 million. That would
still represent a doubling of its operating loss year-over-year.
The health
system's earnings before interest, taxes, depreciation and amortization was
$246 million in the first quarter of 2020, down 41% from the prior-year period,
in which it was $416 million. CommonSpirit reports its first quarter of fiscal
2019 results on a pro forma basis, as the merger had not yet been completed as
of Sept. 30, 2018.
Had CommonSpirit
received the provider fee revenue, the health system estimates its EBITDA would
have been $354 million in the quarter, a 15% year-over-year decline.
CommonSpirit's
acute admissions were flat in the first quarter year-over-year, rounding out
the quarter at about 208,000. Adjusted admissions increased 2.3% in that time
to about 419,000. Adjusted patient days increased 2.2% to nearly 1.9 million.
The health system
saw a strong increase in outpatient visits in the quarter, which climbed 6%
year-over-year to 6.6 million in the recently ended quarter. Gross outpatient
revenue was 50.4% in the first quarter of 2020, up slightly from 49.3% in the
prior-year period.
The health
system's operating expenses rose 3.8% in the first quarter year-over-year, to
$7.4 billion. Within that, supply costs grew 9.1%, which CommonSpirit said was
due to increased volume and higher acuity, which affected pharmaceutical and
supply costs.
Salaries and
benefit expenses grew 4.8% year-over-year, which the system said was primarily
due to wage increases and more expensive employee health coverage.
CommonSpirit
posted a $259 million deficit of revenue over expenses in the first quarter,
compared with a $207 million surplus in the prior-year period. With the
provider fee, the health system estimates it would have seen a deficit of
revenue over expenses of $151 million.
In its financial
report, CommonSpirit's management reiterated its financial goals of achieving
an 8% EBITDA margin, achieving and maintaining days' cash on hand of 150 days,
maintaining debt to capitalization of 45% or less by the end of fiscal 2023,
"though no assurances can be provided as to either the timing or the
achievement of these goals." In the recently ended quarter, CommonSpirit's
EBITDA margin was 3.4%. Its days cash on hand was 151, and its debt to
capitalization was 50%.
CommonSpirit has
also set a goal of saving about $2 billion through synergies and performance
improvement over the next four years—half of that from merger-related synergies
and the other half from performance improvement across its 142 hospitals and
physician practices.
"We are
encouraged by the growth of revenue and volumes as we expand our services, and
we remain focused on achieving significant savings and growth as we build our
organization in this challenging environment for health care," Daniel
Morissette, CommonSpirit's chief financial officer, said in a statement.
"CommonSpirit is continuing its integration efforts that include a
transition to a new operating model and a strategy that focuses on preventive
care, improved patient experience and customized and coordinated services
across the entire continuum of care."
CommonSpirit reported a $602 million operating
loss in its fiscal 2019, which ended June 30, compared with a $267
million operating loss on $15 billion in operating revenue in fiscal 2018.
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