CommonSpirit Health is working to minimize its capital expenditures in a bid to reach positive cash flow amid challenges tied to inflation, labor and the COVID-19 pandemic.
Executives with the nonprofit hospital chain said during the J.P. Morgan Healthcare Conference in San Francisco Monday that they are hoping to limit spending on existing projects. The Catholic hospital chain posted a $1.85 billion net loss across its full 2022 fiscal year that ended in September.
“COVID has obviously taken a toll on all of us. Not just COVID but also the inflation, labor shortages, difficulty discharging patients … has obviously taken a bite out of all of providers around the country,” said Daniel Morissette, CommonSpirit’s chief financial officer, during the session. “Certainly, CommonSpirit is no exception to that.”
Morissette said CommonSpirit is condensing and minimizing its use of capital at the moment, with the exception being projects that have already been approved.
“We are committed to have no so-called half-built walls,” he said. “If we’ve got projects that ran over three, four or five years and we are two years into it, we are continuing with those projects.”
However, CommonSpirit is instead focusing on growth in its most important markets, including those in Colorado and Arizona.
“We’re spending a significant amount of time on portfolio review, and evaluating the markets we serve, where we need to be deeper and broader in markets,” said CEO Wright Lassiter at the conference.
Part of the effort to return to positive cash flow is by bending down the labor inflation that has been plaguing the system and other systems across the country.
Morissette said the system has seen a 35% reduction in labor inflation, but it is still not enough.
“At least the curve is bending back down, but it is an uphill battle,” he said.
The system continues to work on improving efficiencies and synergy to reduce costs, a key priority since the completion of the 2019 Catholic Health Initiatives and Dignity Health merger that created CommonSpirit.
Morissette said that back in 2019, the goal was to take out about $2 billion in costs thanks to the merger, and “we’re at about $1.3 billion.”
For 2023, the system has a goal to take out $500 million out of its non-labor cost base.
“We have to get that quite honestly because if you look at the spread between reimbursement and expenses we need that just to get us to some reasonable, stable number,” he added.
CommonSpirit reported in September that its volumes increased compared to the prior fiscal year, but high rates of contract labor usage and other cost hikes led to expenses surpassing any revenue growth.