The leadership team behind CommonSpirit Health expects the merger that created the new system will generate at least $500 million in cost savings over the next three years, executives said on their first combined investor call Friday.
Catholic Health Initiatives and Dignity Health officially sealed the deal on Feb. 1, and executives with the new Chicago-based system said Friday the resulting synergies would start to pay off within 6 months to one year of closing, with the full extent of the savings realized within five years.
Dan Morissette, CommonSpirit's chief financial officer, said on the call the actual savings could be even higher.
"We do expect the number will be higher than the $500 million," he said.
Morissette, who served as Dignity's CFO before the merger, said CommonSpirit has identified specific "combinational and catalyst synergies" that it expects to realize in the coming year, although those will be partly offset by one-time costs. He described the scope of the work that's underway to fully integrate the two not-for-profit organizations.
"We completed significant due diligence to validate that the new ministry will be stronger financially than each of us could achieve on our own," he said.
The call featured slides showing the combined operating performance of the two legacy systems, including $29.2 billion in operating revenue. The slides were taken down once the call ended. Morissette admitted 2019 is shaping up to be "somewhat more challenging." On a year-to-date basis, overall performance is down from the prior-year period.
"We will be aggressive in addressing this as we move forward," he said.
CommonSpirit has nearly $21 billion in combined investment assets from the legacy organizations and a strong infrastructure to manage those assets, Morissette said.
Neither of CommonSpirit's two co-CEOs spoke on the call, but executives from both CHI and Dignity's legacy finance teams discussed each system's financial results from the quarter ended Dec. 31, 2018. Both systems took hits from the stock market downturn at the end of 2018. For Dignity, that contributed to a $198 million loss in the latter half of the year. CHI posted an even steeper $353.5 million loss during that time.
The call served to illustrate the magnitude of the work ahead.
One of the major tasks currently underway is bringing the organizations under a single credit group and debt structure, which Morissette said will yield significant savings. Additionally, he said CommonSpirit believes it can access more savings using acquisition financing.
The legacy systems also continue to use separate revenue cycle companies: Conifer Health Solutions and Optum360, which is part of UnitedHealth Group. When asked how CommonSpirit plans to address that, Morissett said work is underway but didn't provide details.
Legacy CHI and Dignity facilities also continue to use separate electronic health record platforms: Epic and Cerner. Morissette said the system is working to bring those together so that reporting is consistent. He said that's important area of focus.