Dive Brief:
- CommonSpirit lost $3.4 billion in its most recent financial quarter, as the Catholic nonprofit giant was slammed with a multi-billion dollar charge for breaking up with its billing vendor and lost out on income from the CMS’ delay in approving California’s new Medicaid provider tax model.
- In comparison, CommonSpirit reported a net loss of $69 million in the quarter ended March 31 last year on essentially the same revenue of $9.7 billion.
- Special items weren’t just to blame. The company, one of the largest nonprofit hospital operators in the U.S., has struggled with rising expenses and securing on-time reimbursement from insurers, sending its operating results down. Not counting the impacts of the California provider tax program and the revenue cycle contract termination, CommonSpirit still posted an operating loss of $578 million in the quarter.
Dive Insight:
CommonSpirit’s results for the quarter ended March 31 don’t fare well for the success of the system’s multiyear financial turnaround plan that CommonSpirit launched last year.
In a press release published alongside its more detailed financial results on Friday, CommonSpirit argued it’s still building the foundation for stronger operations in the future.
“Our focus remains firmly on long-term sustainability,” CommonSpirit CFO Michael Browning said in a statement. “Through innovations in care delivery and targeted operational improvements, we are building resilience and ensuring we can continue to achieve our strategic goals.”
But in the meantime, the Chicago-based nonprofit has struggled to hoist its margins. Patients coming into CommonSpirit’s hospitals are less profitable, and the company is having a hard time getting paid by their insurers.
Meanwhile, more of CommonSpirit’s patients are covered by insurers like Medicare that shell out less money for their care compared with commercial payers, according to its financial documents.
CommonSpirit argued there’s reason for optimism, including improving patient volumes. The system’s net patient and premium revenues increased 3% year over year after volumes increased 3.2% year over year on an adjusted basis, mostly thanks to CommonSpirit providers performing more surgeries.
Net patient and premium revenues also rose because CommonSpirit secured higher rates in contract negotiations with insurers, and due to CMS’ approval of Nebraska’s Medicaid provider fee program, the system said.
Under the programs, states impose fees on healthcare facilities to gin up more revenue and draw down higher Medicaid funding from the federal government, which is sent back to the state’s providers. Though the financing mechanisms are set to be restricted under the GOP’s “Big Beautiful Bill” passed last summer, the CMS has continued to approve state requests for the arrangements.
The programs can be a huge boon for health systems. CommonSpirit’s net patient revenue from provider fee programs in the 24 states it operates amounted to $794 million in the quarter, up from $760 million the same time last year.
Still, that’s normalized for the situation in California, where the CMS has yet to approve the state’s hospital tax program for 2025. That delay has led CommonSpirit to miss out on $156 million in income it would have otherwise brought in this quarter, the system said.
As part of its turnaround plan, CommonSpirit has been offloading assets — including its stake in revenue cycle management business Conifer Health Solutions, which CommonSpirit returned back to majority owner Tenet Healthcare in February.
It was a strategic decision to bring billing functions in-house, executives said. But in the near term, it’s putting CommonSpirit on the hook for a hefty payout.
In total, CommonSpirit expects to pay $2.2 billion as a result of the deal, including sending $1.9 billion to Tenet over the next few years to exit its services contract. The system lodged the full charge in the quarter ended March 31, which was largely to blame for its plummeting net loss.
CommonSpirit has also been selling hospitals, including a 25-bed critical access hospital in North Dakota in early March. The system also agreed to sell an Ohio hospital to UPMC earlier this month.
