CommonSpirit Health’s operations saw year-over-year improvement for the quarter ended March 31, though the nonprofit is still facing losses amid expense growth and reimbursement challenges that outpaced the season’s high flu volumes.
The numbers released Thursday show a $241 million operating loss (-2.5% operating margin) and a $42 million net loss during CommonSpirit’s third fiscal quarter—though after adjustments to normalize income from the California Provider Fee Program, those came to an $85 million operating loss (-0.9% operating margin) and $114 million net gain.
The equivalent period a year earlier showed a $365 million operating loss (3.9% operating margin) and $282 million net gain.
Across the first nine months of CommonSpirit’s fiscal year, which will end on June 30, the system’s operations are about even with the prior year. The organization now sits at a $438 million operating loss (-1.5% operating margin) across three quarters, as compared to the prior year’s $411 million operating loss (-1.5% operating margin).
Adjusted those again for the California Provider Fee Program showed a clearer improvement—a $282 million operating loss (-1% operating margin) as opposed to the prior $705 million operating loss (-2.6% operating margin).
Normalizing for the fee program, CommonSpirit saw its operating revenues and expenses, respectively, rise year over year from $9.3 billion to $10 billion and $9.6 billion to $10.1 billion.
Volumes during the quarter were generally up year over year, with adjusted admissions increasing 4.1%, outpatient visits by 6.3% and emergency room visits by 2.1%. Average acute length of stay dropped narrowly from 4.9 days to 4.8 days for the third quarter, while gross revenue payer mix across nine months remained roughly consistent.
Other operating revenues (not net patient or premium revenues) rose from $466 million to $811 million, with CommonSpirit calling out higher grant revenue, including $272 million from FEMA as well as a $42 million rise in pharmaceutical revenue.
Commentary from management included in the system’s filings stressed the damage that underwhelming reimbursement has had, and will continue to have, on the organization’s performance.
“Normalized revenue increases continue to be impacted by challenges with payers on denials and timely payments, and payment increase from both government and non-government payers that are less than inflation,” management wrote. “The major challenges the organization continues to face are limited increases in revenue levels and ensuring the organization receives the revenue and cash flow it is entitled to for services provided given the continued inflationary pressures on salaries and other costs.”
Operating expenses during the quarter included a 3.7% year-over-year increase in salaries and benefits spending and, for the nine-month period, a 4.7% increase. The system said that higher volumes and salary inflation were behind the increases, which in filings it said were partially offset by “labor productivity and reduced contract labor spend.” Labor cost as a percentage of normalized net patient revenue sat at 55.1% for the quarter and 54.8% for the three-quarter period.
Also up was spending on supplies for the quarter (5.4%) and the nine-month period (8.9%), as well as spending on purchased services and other items (7.6% and 8.8%). Among these, the system called out inflationary impacts on supplies, higher medical fees and out-of-network costs—though the organization said it is “working on reducing supply costs through renegotiation of supply chain contracts and vendor consolidations.”
Uncompensated care represented 1.6% of CommonSpirit’s total expenses both for the quarter and fiscal year to date, an increase from the 1.4% of the prior year.
Nonoperating items were headlined by $499 million in reduced investment income compared to the prior year’s third quarter, and $593 million less investment return across nine months.
CommonSpirit now sits at a $480 million net gain (after normalization) for the nine months of its current fiscal year, as opposed to the $468 million (after normalization) it had at this point the prior year. As of March 31, it had 149 days of cash on hand (normalized) and 49.3% debt to capitalization.
Management, in the filings, outlined ongoing efforts to improve operating performance. Volume growth, for instance, is being targeted by improving network integrity, expanding ambulatory services and optimizing capacity for perioperative and imaging. Increased focus on payers’ denials and more collaboration with revenue cycle vendor partners were listed on the revenue front.
“Our team members' dedication to providing high-quality care, improving efficiency, and finding innovative solutions is driving results,” CommonSpirit Chief Financial Officer Dan Morrissette said in a release. “While we are encouraged, we remain focused on implementing strategies to address ongoing challenges with payer reimbursements and inflationary pressures.”
CommonSpirit Health is among the nation’s largest nonprofit health systems, operating more than 2,300 care sites, including 137 hospitals in 24 states. During its most recently completed fiscal year, it reported $37 billion in operating revenues and a normalized operating loss of $875 million (-2.4% operating margin).
The organization’s reports of strong demand for services, inflationary expenses and ongoing reimbursement pushback from payers were common refrains during the earnings calls of its for-profit peers held during the past few weeks.