Ascension down nearly $1.9B in 9 months after fiscal Q3's elevated costs, one-time impairment losses

Ascension reported Friday a bruising $1.36 billion operating loss for the quarter ended March 31, more than half of which was tied to “significant, one-time non-cash impairment losses” the system blamed on “ongoing business conditions impacting healthcare providers.”

The roughly $715 million of impairment losses represent Ascension’s determination that “the carrying value of certain [long-lived] assets within Ascension’s markets may not be fully recoverable,” system management wrote in its latest financial statements. The filing did not outline the specific assets.

Even discounting the one-time loss, Ascension’s recurring operations and bottom line faltered amid “higher operating costs coupled with sustained revenue challenges,” the nonprofit said.

For the most recent quarter, the third in Ascension’s fiscal year, the system reported a $647.1 million loss from recurring operations (-9.3% operating margin for recurring operations), a modest improvement from the $687.2 million loss (-10.3% operating margin for recurring operations) of the prior year’s equivalent quarter.

“As has been widely reported, hospitals nationwide are experiencing intense financial and operational pressures as a result of the after-effects of the COVID-19 pandemic, continued healthcare worker staffing shortages, ongoing supply chain challenges and persistent inflation. Ascension is no exception to these trends,” Liz Foshage, executive vice president and chief financial officer, said in a statement.

Total operating revenue rose 3.8% year over year to $6.94 billion driven by a bump in net patient service revenues.

Volumes played a key role here, with Ascension highlighting a 5.3% year-over-year increase in equivalent discharges, a 1.3% rise in inpatient surgery visits, an 8.2% rise in outpatient surgery visits, a 2.8% rise in clinic visits and a 4.2% increase in emergency room visits.

"Consistent with industry trends, the system is experiencing a shift from inpatient to outpatient procedures that was accelerated in part during the pandemic,” management wrote. “However, for Q3 FY23 YTD, Ascension experienced moderate increases in several volume metrics over the same period in the prior year.”

The rising volumes were kept somewhat in check by “a slight shift” toward more governmental payers as well as a dip in inpatient acuity. Ascension pointed to a decline in COVID-19 activity and commercial rates that “have not kept pace with inflation and have only provided limited relief in mitigating escalating cost pressures.”

Total operating expenses during the quarter increased by a corresponding 3.8% year over year. Ascension said it was able to trim its salaries and wages expenses as well as its supply costs by outsourcing lab services. On the flip side, that outsourcing was a key driver in the hundreds of millions in additional purchased services costs the system has tallied throughout its fiscal year.

The system also noted reduced reliance on agency staffing and a 4% year-over-year reduction in average length of stay that it said have helped stabilize its expenses after a turbulent 2022.

Outside of operations, Ascension’s investments came up big with a $700 million net return during the quarter. These helped limit the nonprofit’s net loss to $713 million for the quarter, an improvement over the previous year’s $884.7 million net loss.

The tough quarter brings St. Louis-based Ascension to a nine-month operating loss of $1.77 billion (-8.3% operating margin) and a bottom line loss of $1.87 billion, as opposed to the prior year’s $640.1 million (-3.1% operating margin) nine-month operating loss and $145.2 million net gain.

The 140-hospital Catholic healthcare giant employs roughly 134,000 people across 19 states and the District of Columbia and reported $28 billion in total revenue during its 2022 fiscal year.

Ascension joins fellow Catholic nonprofits Providence and CommonSpirit Health in reporting hundreds of millions in operating losses during the most recent quarter.