CommonSpirit Health kicks off its fiscal 2023 with a $397M net loss, 0.3% operating margin

CommonSpirit Health eked out a $23 million operating gain but ultimately logged a $397 million net loss for the opening quarter of its fiscal year due to investments dragging its performance down by over half a billion dollars.  

In financial filings published late Tuesday, the 138-hospital Catholic system said the COVID-19 pandemic, labor shortages, inflation and other related trends are combining to hammer its bottom line.

“The current fiscal year has experienced continued increases in expense levels along with revenue challenges associated with an unfavorable shift in payor mix, declining acuity and lower revenue yields,” CommonSpirit’s management wrote in the filing.

The system’s $23 million operating income (0.3% margin) for the three months ended Sept. 30 represents a slight decline from the $34 million (0.4%) recorded during the same time last year.

Operating revenue for the quarter rose to about $9.01 billion from the previous year’s $8.55 billion (5.4% year-over-over increase).

Although net patient revenue declined (after normalizing for California’s Provider Fee Program) by 1.2% year over year due to slowing high-acuity COVID admissions and the divestiture from MercyOne, CommonSpirit noted that it’s seeing a gradual return in non-COVID patient volumes.

Compared to the previous year, the quarter saw a 2% increase in same-store-adjust admissions and a 2.8% increase in same-store inpatient surgeries. At the same time, acute inpatient days, adjusted patient days and acute average length of stay declined 5.6%, 2% and 3.9%, respectively, on a same-store basis compared to the prior year. Outpatient and emergency department visits also saw minor declines.

CommonSpirit’s quarterly expenses jump from last year’s $8.52 billion to $8.99 billion (5.6% year-over-over increase) was fueled by a $219 million 5.1% increase in salaries and benefits, though the system noted in a press release that its contract labor costs have been reduced by 43% from their peak in March. Supply costs decreased by $65 million (4.6% year-over-over decline) while purchased services and other costs rose by $80 million (3.4% year-over-over increase).

At-cost charity care represented 1.5% of total expenses for the quarter.

CommonSpirit saw a $436 million net loss related to its nonoperating items, which were headlined by a $517 million net loss on its investments. The quarter’s numbers also include the $613 million sale of its 50% stake in MercyOne, for which the system recognized a $34 million loss.

All told, the system notched a $397 million first-quarter net loss one year after it had enjoyed a $269 million net profit. The organization was sitting on $2.36 billion in cash and cash equivalents as of Sept. 30, with days of cash on hand dropping by 14 days to 162 since the prior quarter.

“CommonSpirit Health continues to deliver essential health care services to communities across our 21 states, despite challenging and uncertain economic conditions,” Chief Financial Officer Dan Morissette said in a release accompanying the numbers. “We are leveraging our strengths as a large and integrated healthcare network to address nationwide labor shortages, maintain access to care and ensure we can sustain our operations. At the same time we are focused on improving care quality, reducing costs and investing in new ways of delivering care.”

CommonSpirit said in a separate filing that it will be holding an investor call with additional details and Q&A on Nov. 22.

The Catholic healthcare giant is coming off a nearly $1.3 billion operating loss (-3.8% operating margin) and a $1.85 billion net loss during the full fiscal year that ended on June 30.