Leaders at CommonSpirit Health are eyeing some lofty goals, mainly producing a $2 billion benefit to the organization’s bottom line over a four-year period. The Chicago-based health system made a significant move in that direction late last month when it consolidated its group purchasing organization service provider, selecting Premier to help integrate the 137-hospital system’s supply chain. Leaders are targeting other efficiencies as they continue to blend Dignity Health and Catholic Health Initiatives into one mega-system. CommonSpirit Chief Financial Officer Daniel Morissette spoke with Modern Healthcare finance reporter Tara Bannow during last month’s J.P. Morgan Healthcare Conference. The following is an edited transcript.
MH: You’ve talked about gaining efficiencies and the savings target that you have in mind. When will those show up in earnings results and what will it look like?
Morissette: We did a very significant bond roadshow back in August. Really nothing has changed from that time. We have said publicly that we would be improving overall efficiency by $2 billion. We also said that half of that was related to the merger—duplicative efforts, even ultimately consolidation of service centers, better purchasing leverage, etc. The other half would come from what health systems traditionally do to improve efficiency in these challenging times, like improving length-of-stay management, getting a little more out of the revenue cycle, just overall facility-related improvements.
We’ve also said that those would be both on the expense side as well as the revenue side. I don’t have much more to say than where we were originally. We said that we would do this by 2023. Our goal is to have an 8%-plus EBITDA margin, which is significantly higher than what it is currently. One element of how we will get there is by making these improvements.
MH: On your earnings call, analysts seemed to push you a little on wanting to see the progress, or they want to get numbers. You said on the call, “We’re not going to give you a play-by-play. We’re not going to give you specific numbers as far as where we are.” What’s the rationale behind that?
Morissette: We believe in full transparency. We’re very transparent with investors … if you looked at other systems, our goal is to be best-practice, in terms of how much disclosure we give. … Ultimately, if it works for the organization, you’ll see it in the results.
We’re a company that has about $30 billion in revenue and to mention that we saved $4 million on rebidding something, which we are doing every day, is not really material to the overall financial (picture). It really has more to do with the balance between the overall performance of the organization and its upward trajectory that we’re planning.
MH: Hospitals in 2018 saw a slight decrease in the number of outpatient visits, the first decline since 1983. What are you are seeing in that area and how are you competing in this space?
Morissette: We had negative adjusted admission growth in some of our markets. We’ve had a significant effort in cooperation with the markets to actually grow. What we have seen actually is adjusted admissions increase on both an inpatient basis and an outpatient basis.
I think it’s true, there is more competition. We do have to innovate more and consumers do have more choices. Generally speaking, our outpatient volume continues to grow faster than our inpatient. Now, as I said, we’re not the best case study today, because we have almost one year of data to go on. We do know that it’s up on a same-store sales basis.
MH: There’s conversation going on now about whether admissions should still be used as a measure of success. How do you look at that?
Morissette: Our whole approach is about, “How can we serve our consumers where the care is best rendered?” I don’t believe hospitals are going away. For the next 20 years, or 50 years, or whatever, there will still be care that needs to be rendered in a hospital. We have both; it depends on the market. For example, in Southern California we have more capitated plans, where we too get the financial benefit. We get the benefit of people not being admitted, whereas if you’re fee-for-service, in theory, you’re getting the benefit of having people in.
Our approach is always to do what’s right for the consumer, then it is not that much of a dilemma. We need to be aware of what the consumer’s insurance is, for example.
If people belong in an inpatient setting, we attempt to put them in inpatient. If they can be cared for in a less expensive outpatient setting, they should be in the outpatient setting.
MH: At the same time, do you want to see your admissions increase?
Morissette: What we want is more people to choose to come to our health system.
If the population is healthier and we can find ways to get people out of the hospital, we’d love to be the one who has a greater shift from an outpatient perspective.
Overall, although the data lags, what we really want is for people of all levels—the vulnerable, the fully insured, and everybody in between—to disproportionately choose our care.
MH: Systems seem to be under a lot of pressure to show analysts that they are meeting these metrics. It seems like if you reported a decline in admissions, you’d get picked apart for that a little.
Morissette: We respect analysts. Listen to the investor call for Apple. Apple is the highest market cap in the history of the world. The analysts want more information. Our job is mostly to focus on what we’re doing and be as transparent as is reasonable to be transparent. Even when we’re wildly successful in all measures, we don’t expect analysts to get on the phone and congratulate us for a great job.
