Dive Brief:
- CommonSpirit Health reported a $441 million operating loss in the first quarter of the 2024 fiscal year on increased expenses.
- The system expects a California assistance fund — due to be approved later this fall — to offset its operational losses slightly. However, CommonSpirit’s net loss ballooned to $738 million in the quarter as investments faltered, compared to a $413 million loss same time last year, according to its earnings report filed Wednesday
- In the report, CommonSpirit also outlined plans to expand its ambulatory care footprint next year after a string of recent outpatient acquisitions in multiple states, despite liquidity concerns.
Dive Insight:
CommonSpirit’s first-quarter results continue its pattern of financial struggle. The Chicago-based nonprofit, which operates approximately 2,200 care facilities including 142 hospitals, reported steep operating losses in fiscal years 2022 and 2023.
CommonSpirit said it expects operational losses to be mitigated somewhat in the first quarter. The system expects to collect an increase of $100 million annually in net income under California’s provider fee program, which provides supplemental payments to California hospitals that serve Medi-Cal and uninsured patients.
The program was set to begin in January 2023, but the CMS has yet to approve the final funding structure. The agency is expected to approve the funds by late fall this year, CommonSpirit said.
Should the funding come through, CommonSpirit’s operational losses for the first quarter would shrink to $291 million, according to the filing.
Expenses grew more quickly than revenue in the quarter, as salary and supply cost inflation increased faster than payer reimbursement rates, the system said.
CommonSpirit reported operating revenues of $8.9 billion and operating expenses of $9.2 billion, normalized for the anticipated provider fee program.
Rising expenses were partially offset by improving volume, according to CommonSpirit. Acute admissions and same-store acute admissions rose 4.1% year-over-year, while adjusted admissions and same-store adjusted admissions increased by 5% and 4.8%, respectively.
The system noted it faces numerous potential cash shortages, including inflationary pressures, cash flow upsets related to denials and disruptions as the operator waits for provider fee payments.
CommonSpirit also has pending insurance proceeds related to a cybersecurity incident last year, which it said ran the nonprofit $160 million in total cost.
The nonprofit outlined an agenda to get back in the black, including focusing on optimizing its workforce. CommonSpirit has already undergone two rounds of layoffs in the back half of 2023, impacting leadership and administrative roles in the third quarter and ancillary and support functions in the fourth quarter, according to earnings filings.
CommonSpirit also plans to invest in its ambulatory care capacity in the coming year, a strategy being pursued by a number of major hospital operator as more care is administered outside of the inpatient setting.
CommonSpirit recently added 19 imaging centers in California and Texas; seven surgery centers in Arizona and California; and six primary and urgent care sites in California and Washington. The nonprofit plans to add behavioral health services in four states this calendar year, and plans to add up to eight more sites through 2028, according to the earnings report.
The eye toward expansion comes even as the operator reported it is “actively monitoring” its liquidity amid “weak” operating cash flows and investment losses.
