CommonSpirit Health weathers $1.85B net loss in fiscal 2022, eyes dual challenges of staffing and inflation

CommonSpirit Health has joined the chorus of major nonprofit health systems reporting 10-figure losses for the 2022 fiscal year ended June 30.

The Catholic healthcare giant said Friday it saw a nearly $1.3 billion operating loss (-3.8% operating margin) and a $1.85 billion net loss across the full year. During the previous fiscal year, it had brought in almost $1 billion in operating income (3% operating margin) and experienced a $5.45 billion net gain.

“The pandemic continues to create financial challenges for healthcare providers, particularly with labor shortages resulting in higher contract labor usage, but there are near-term favorable trends from a volume perspective,” the system wrote in its annual report. “CommonSpirit volumes have increased when compared to prior year, with acute admissions increasing 1.1% and outpatient surgeries increasing 5.1%. The challenge now is the impact of inflation on expenses as they continue to grow at a greater rate than revenue.”

CommonSpirit logged $33.9 billion in total operating revenues during 2022, a 4.8% year-over-year increase. The system attributed the gain to higher rates, new health system affiliations and—particularly in the outpatient setting—stronger volumes.

Specifically, the nonprofit saw a 3.7% increase in adjusted admissions, an 8.1% increase in adjusted patient days, a 6.4% increase in outpatient visits and a 15.2% gain in emergency department visits. Gross outpatient revenue represented 50.4% of the system’s total gross patient services revenue, a 1.3% increase over the previous year.

Rate changes and improvements to service mix and revenue cycle also increased the money coming in with each patient, CommonSpirit wrote, as demonstrated by a 2.8% year-over-year increase in normalized net patient and premium revenue per adjusted admission.

However, the 4.8% operating revenue gain was outclassed by a 9.9%, or $3.2 billion, increase in total operating expenses.

Salaries and benefits led the way here with a $2.2 billion jump over the prior year, representing a 13.5% total increase and a 9.5% increase per adjusted admission.

CommonSpirit noted that “staffing remains a pressing issue across the industry” and listed internal programs addressing staff resilience and workforce expansion as “key strategic priorities for the organization.” These efforts include staff retraining, wellness, new staff identification, site transfers and new graduate medical education relationships and residency programs, the system wrote.

The other primary contributor to 2022 expense increases was a $502 million, or 9.9%, jump in supply spending, which CommonSpirit attributed to “higher-than-anticipated” inflation, volume recovery and its new affiliations.

Similar to other systems, CommonSpirit’s $551 million nonoperating loss was fueled by dicey investment markets. The organization reported a $971 million net loss attributed to its investments, a contrast to the $3.4 billion it enjoyed during last year’s swelling markets.

CommonSpirit said its days of cash on hand fell from last year’s 245 days to 176 days as of June 30. Further, the total amount of community benefits including unpaid Medicare costs fell by $217 million to $3.9 billion “as a result of the continued impact of the pandemic.”

The system also laid out a handful of forward-looking strategic focuses in the annual report. These included greater consumer engagement, virtual care investments and a continued commitment to building up its population health capabilities.

“This continues to be a very challenging time for health systems, especially nonprofit health systems like CommonSpirit where a majority of patients are Medicare and Medicaid beneficiaries,” CommonSpirit Chief Financial Officer Dan Morissette said in a press release. “As an integrated organization with a broad footprint, we’ve been able to take many steps to reduce costs and grow revenue. But it’s clear we need to do more to improve performance." 

Chicago-based CommonSpirit employs more than 150,000 staff across 21 states. As of the fiscal year’s close, it included 142 hospitals among its roughly 2,200 care sites.

The organization also recently welcomed new CEO Wright Lassiter, who came from Henry Ford Health to succeed Lloyd Dean.

CommonSpirit’s numbers place it neck and neck with Ascension Health, a fellow major Catholic system that earlier this week reported a -3.1% operating margin and a $1.8 billion net loss.

Recent months’ expense, inflation and investment challenges have also hung heavy over other well-known nonprofits including Cleveland Clinic, Providence, Mass General Brigham and Sutter Health, all of which reported operating and net losses during their most recent quarters.

An August report from Fitch Ratings warned that these pressures are likely to continue weighing on nonprofit hospitals and health systems through the end of the year and potentially beyond.