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October 07, 2020 06:00 PM

CommonSpirit pushes back cost savings timeline

Tara Bannow
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    Modern Healthcare Illustration / Getty Images

    CommonSpirit Health still plans to shave $2 billion from its costs, but it's probably going to take five years instead of the planned four, the system told investors Wednesday.

    The COVID-19 pandemic drove an uptick in labor and supply costs, and volumes plummeted across the system, which cared for more than 37,000 COVID patients across its 137 hospitals. The shift in focus toward responding to the crisis has caused the not-for-profit health system to push back its timeline on its merger-related performance targets by an estimated 12 months.

    Dan Morissette, CommonSpirit's chief financial officer, said on a call with analysts and investors that it's not clear how long the delay will be, given the uncertainty around when the pandemic will end. A "back of the envelope" calculation said it will be roughly a year, he said.

    "That's something we certainly will update as we hopefully realize vaccines and other things that help make this pandemic end sooner rather than later," Morissette said.

    Chicago-based CommonSpirit had cut $350 million from its expenses as of February, but Morissette declined to provide an updated figure last week.

    Of the $350 million in savings, $120 million came from finding merger-related synergies corporate functions like marketing, finance, enterprise risk management and information technology. Another $230 million in savings came from revenue cycle, labor productivity, physician enterprise and supply chain, the system said.

    CommonSpirit's other goals include getting its earnings before interest, taxes, depreciation and amortization margin to 8%, getting to a sustainable level of cash flow and returning to its pre-pandemic performance.

    "Our fiscal discipline and synergy goals remain constant," Morissette said, "and in fact, we've stepped up our efforts where we can."

    All told, CommonSpirit lost $550 million on operations in its fiscal 2020, which ended June 30. The system drew $29.6 billion in revenue, compared with $21 billion in fiscal 2019.

    When CommonSpirit announced the $2 billion cost savings goal in June 2019, it said the savings would come from both merger-related and performance improvement synergies.

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