CommonSpirit Health announced $81 million in operating losses for the second quarter of its fiscal year, due primarily to increasing labor and supply costs only partially offset by recovering patient volumes and high-acuity cases.
Additionally, the Catholic provider placed a $135 million price tag on its definitive agreement to acquire two hospital facilities in western Kansas and northern Colorado.
That deal, announced Feb. 1, is scheduled to be completed by June 30 pending customary terms and conditions and would see those facilities managed by Centura Health, CommonSpirit's joint venture with AdventHealth.
CommonSpirit said in a release that its quarter was characterized by the end of the delta variant surge and the rise of the omicron wave. The system’s COVID-19 census remained above 1,000 patients for “most” of the fiscal quarter but climbed to more than 2,000 by its Jan. 1 end.
While these cases were less severe, the “significant number of hospitalizations” and limited capacity among post-acute care sites caused by the industrywide labor shortage drove up CommonSpirit’s average length of stay for its second quarter.
“This quarter demonstrated how important it is that we are proactive and strategic about managing the impacts of the COVID-19 pandemic,” CommonSpirit Chief Financial Officer Dan Morissette said in a statement. “While patients continued to return to our care sites, labor and supply costs also rose significantly. Our priority now must be meeting the increased demand for care and doing all we can to support our employees, while also focusing on efficiencies as we continue to see ebbs and flows from the pandemic.”
CommonSpirit’s net patient and premium revenue for the second quarter increased 9.3% ($710 million) year over year, while same-store adjusted admissions rose 1.5% year over year, outpatient visits rose 5.1% year over year and emergency department visits jumped 16.6% year over year. Total operating revenue for the quarter was $8.88 billion.
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But the health system also saw a 12.3% year-over-year increase in labor expenses per adjusted admission and an 11.6% ($152 million) rise in supply costs.
These expenses led to a negative 0.9% operating margin loss for the quarter and $442 million EBITDA (5% margin), the latter of which paled in comparison to the $837 million (10.1% margin) CommonSpirit had logged in the previous year’s second quarter. Also playing a role was the $217 million in investment income logged during the most recent quarter, which fell below the prior year’s $1.19 billion of investment income due to “much more favorable financial markets,” the system said.
Although CommonSpirit attributed the higher supply costs to inflation and the need to purchase more supplies to treat high-acuity COVID-19 patients, the system also noted its earlier efforts to centralize and coordinate supply purchasing as well as to identify additional U.S.-based suppliers “helped mitigate” the rising costs.
Similarly, the system’s earnings release underscored its long-term initiatives to address staffing challenges, including a systemwide nursing residency program starting in the spring, an expansion of CommonSpirit’s internal nurse staffing agency and a continuing push toward a virtually integrated care model. It also highlighted partnerships with the Morehouse School of Medicine, Creighton University and other academic partners that focus on diversifying the next generation of clinicians.
CommonSpirit Health operates 140 hospitals and more than 1,500 care sites across 21 states. The nonprofit health system's fiscal year ends June 30.
This quarter’s operating loss comes shortly after the Catholic system’s comeback in fiscal 2021, when it posted an operating gain of $998 million (3% operating margin).