CommonSpirit Health logs $474M operating loss for quarter ended Dec. 31 but stays in the black thanks to investments

CommonSpirit Health’s rising volumes weren’t enough to offset staffing shortages, rising costs, declining acuity and a ransomware attack during the Catholic health giant’s second fiscal quarter of 2023, according to financial results reported Wednesday.

The 138-hospital nonprofit system disclosed a $474 million operating loss (-5.7% margin) for the quarter ended Dec. 31, 2022, nearly a sixfold plummet from the $81 million operating loss (-0.9% margin) recorded during the same period a year prior.

CommonSpirit had eked out a $23 million operating gain (0.3% margin) during its first fiscal quarter of the year. The system now sits at a six-month operating loss of $415 million (-2.6% margin)—a year-over-year decline of $47 million that balloons to a $654 million difference after adjusting the comparison for the California provider fee program.

Second quarter operating revenue fell $584 million (6.6%) year over year to $8.3 billion, outpacing a $191 million (2.1%) decline in operating expenses to $8.77 billion

Still, second-quarter excess revenues over expenses rose from last year’s $138 million to $200 million, largely thanks to $719 million in net investment income recorded during the most recent period. On a six-month basis, excess revenues over expenses has plummeted from last year’s $439 million excess to this year’s $213 million deficit.

“We are meeting our challenges head-on by scaling programs that drive growth, create a better experience for patients and support our employees,” Chief Financial Officer Dan Morissette said of the “challenging economic climate” in a release. “At the same time, we are working hard to reduce our costs so we can sustain these essential services in the long term.”

The bright spot for CommonSpirit during the most recent quarter was a continuation of the volume gains noted during the preceding three months. Same-store adjusted admissions rose 3.1% year over year while outpatient and emergency department visits rose 2% and 5%, respectively, the system reported.

However, net patient and premium revenues were down overall and per same store adjusted admission due to a combination of lower COVID-19 volumes and acuity, an unfavorable shift in payer and service mix and CommonSpirit’s high-profile cybersecurity incident.

That breach is estimated to have adversely impacted the system by $150 million to date due to business interruptions, insurance recoveries and other related expenses. Investigation into the incident is still ongoing, the system wrote.

Also working against CommonSpirit has been lingering, industrywide jumps in labor and supply expenses.

The Catholic system’s total operating expenses for the quarter fell $191 million year over year with dips in salaries and benefits ($80 million) and supplies ($90 million); however, on a same-store basis, removing the divestiture of MercyOne, salaries and benefits rose ($64 million) while supplies expense improvements were more muted ($40 million). Purchased services have remained a pain point, increasing by $5 million (after normalization for the California provider fee program costs) year over year and by $74 million on a same-store basis.

At-cost charity care represented 1.3% of CommonSpirit’s total expenses.

The system is sitting on $1.85 billion in cash as of Dec. 31, down $741 million from the end of the previous fiscal year in June. It has 160 days of cash on hand available.

The Chicago-based organization 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 June 30, 2022.  It currently operates about 2,200 care sites and facilities in 21 states and employs more than 150,000 people.

The Catholic system has also been busy in the Rocky Mountain region as of late, announcing Tuesday that it would be breaking up Centura Health, its Colorado-based joint venture with AdventHealth, after a 27-year run. The transition will leave CommonSpirit operating and managing 15 of Centura’s 20 hospitals.

A day later, CommonSpirit also announced that it plans to purchase five Steward Health Care hospitals and other locations in Utah by the end of the year, pending regulatory approval and other closing conditions. The facilities will be acquired for a gross purchase price of $685 million "plus certain working capital adjustments," according to the earnings report, and will be managed by Centura.