CommonSpirit Health quadrupled its operating loss in the first quarter of its fiscal 2020 as the young organization struggles to integrate two health systems covering 21 states.
The Chicago-based system, formed through the Feb. 1, 2019 merger of Catholic Health Initiatives and Dignity Health, posted a $227 million operating loss on $7.2 billion in operating revenue in the quarter, which ended Sept. 30, or a 3.2% negative operating margin. That's compared with a $56 million loss on $7.1 billion in revenue in the prior-year period, a 0.8% negative margin.
CommonSpirit blamed the steep operating loss on not having recognized any California provider fee revenue during the quarter ended Sept. 30. It wrote that the state anticipates CMS approval on those funds in spring 2020. Had CommonSpirit received the same level of provider fee funds in the recently ended quarter as it did in the first quarter of its fiscal 2019, the health system estimates its operating loss in the recent quarter would have been $119 million. That would still represent a doubling of its operating loss year-over-year.
The health system's earnings before interest, taxes, depreciation and amortization was $246 million in the first quarter of 2020, down 41% from the prior-year period, in which it was $416 million. CommonSpirit reports its first quarter of fiscal 2019 results on a pro forma basis, as the merger had not yet been completed as of Sept. 30, 2018.
Had CommonSpirit received the provider fee revenue, the health system estimates its EBITDA would have been $354 million in the quarter, a 15% year-over-year decline.
CommonSpirit's acute admissions were flat in the first quarter year-over-year, rounding out the quarter at about 208,000. Adjusted admissions increased 2.3% in that time to about 419,000. Adjusted patient days increased 2.2% to nearly 1.9 million.
The health system saw a strong increase in outpatient visits in the quarter, which climbed 6% year-over-year to 6.6 million in the recently ended quarter. Gross outpatient revenue was 50.4% of total gross patient services revenue in the first quarter of 2020, up slightly from 49.3% in the prior-year period.
The health system's operating expenses rose 3.8% in the first quarter year-over-year, to $7.4 billion. Within that, supply costs grew 9.1%, which CommonSpirit said was due to increased volume and higher acuity, which affected pharmaceutical and supply costs.
Salaries and benefit expenses grew 4.8% year-over-year, which the system said was primarily due to wage increases and more expensive employee health coverage.
CommonSpirit posted a $259 million deficit of revenue over expenses in the first quarter, compared with a $207 million surplus in the prior-year period. With the provider fee, the health system estimates it would have seen a deficit of revenue over expenses of $151 million.
In its financial report, CommonSpirit's management reiterated its financial goals of achieving an 8% EBITDA margin, achieving and maintaining days' cash on hand of 150 days, maintaining debt to capitalization of 45% or less by the end of fiscal 2023, "though no assurances can be provided as to either the timing or the achievement of these goals." In the recently ended quarter, CommonSpirit's EBITDA margin was 3.4%. Its days cash on hand was 151, and its debt to capitalization was 50%.
CommonSpirit has also set a goal of saving about $2 billion through synergies and performance improvement over the next four years—half of that from merger-related synergies and the other half from performance improvement across its 142 hospitals and physician practices.
"We are encouraged by the growth of revenue and volumes as we expand our services, and we remain focused on achieving significant savings and growth as we build our organization in this challenging environment for health care," Daniel Morissette, CommonSpirit's chief financial officer, said in a statement. "CommonSpirit is continuing its integration efforts that include a transition to a new operating model and a strategy that focuses on preventive care, improved patient experience and customized and coordinated services across the entire continuum of care."
CommonSpirit reported a $602 million operating loss in its fiscal 2019, which ended June 30, compared with a $267 million operating loss on $15 billion in operating revenue in fiscal 2018, according to Modern Healthcare's financial database.
