- CommonSpirit is continuing to hunt down a third party to take over its North Dakota and Minnesota operations after a previous deal fell through earlier this year.
- The Catholic nonprofit giant is currently in discussions with an undisclosed third party to negotiate a definitive affiliation agreement to transfer ownership of its North Dakota and Minnesota facilities, including 13 critical access hospitals and one full-service tertiary hospital, along with associated clinics and home health operations.
- CommonSpirit, which did not respond to requests for information by time of publication, disclosed the discussions in its first quarter 2022 earnings report released Tuesday, roughly six months after calling off a deal where Duluth, Minnesota-based regional operator Essentia Health would have acquired the facilities.
In May, CommonSpirit and Essentia nixed the proposed deal just four months after it was first announced, following opposition from nurses and medical workers. Nurses said they were afraid of layoffs and restricted access to patient care stemming from the deal.
But it appears CommonSpirit is continuing to search for a buyer for the majority critical access facilities, which are no bigger than 25 beds and are almost always geographically isolated. Many critical access hospitals were struggling financially even before last year and the worst of the COVID-19 pandemic.
And North Dakota and Minnesota aren't a major driver of revenue for Chicago-based CommonSpirit, which is likely looking to shed off underperforming facilities after a $550 million loss last year. The two states are part of CommonSpirit's Midwest division, which also includes Nebraska, Iowa and Wisconsin and brings in just 9% of the system's operating revenues.
CommonSpirit disclosed the ongoing search in its results for the quarter ended Sept. 30, when rising COVID-19 cases spurred by the highly infectious delta variant pressured the operations of many hospitals.
Even CommonSpirit, the largest nonprofit in the U.S. with 140 hospitals across 21 states, was not immune.
Management of CommonSpirit, which was formed from the merger of Catholic health giants Dignity Health and CHI in February 2019, said its size and geographic diversity helped smooth the impact of COVID-19 headwinds on the system. But the summer surge dampened the system's operations in the quarter, as higher volumes (and resulting increase of labor and supply costs) drove down its bottom line, with expenses outpacing revenue growth.
CommonSpirit recorded an operating income of $34 million in the quarter. That's compared to $167 million the same time last year, when the system recorded a hefty revenue bump from congressional relief funding.
The Chicago-based system saw its COVID-19 cases peak early this year, followed by a steep drop in cases over the spring and early summer. But its outlook worsened considerably in July and August, as the delta variant caused a spike in patient census in early September to almost 2,900 patients.
In a bright spot, cases are now trending down, with a current census of 1,153 patients in early November, CommonSpirit said. But COVID-19 drove a significant increase in volumes in its first quarter: On a year-over-year basis, volumes per adjusted admission were up 8%, adjusted patient days were up more than 15%, outpatient visits were up 15% and emergency room visits were up 24%.
The volume spike and a greater number of high-acuity patients drove operating revenues up 11% to almost $8.6 billion.
But expenses jumped 13% year over year to $8.5 billion. Salaries and benefits were up more than 16% compared to the first quarter of 2020, due to high contract labor costs, higher staffing costs due to premium pay programs and overtime and retention programs, among other factors. Meanwhile, supplies expenses hiked 17% as higher-acuity patients drove more pharmaceutical, lab and other supply spend.
As a result, CommonSpirit's operating margin dwindled to 0.4% from 2.2% at the same time last year.
Staffing woes exacerbated by the pandemic have emerged as a significant long-term issue for hospital operators nationwide. Kaiser earlier this week narrowly avoided what would have been a historically large strike of its workers amid tense contract negotiations, while other open-ended strikes at hospitals across the country continue to stretch on.
In a bid to head off similar labor disputes, CommonSpirit said its established internal programs focused on staff retraining, wellness and resilience and is "aggressively working" to identify new staff in key specialty areas. The system is also implementing a five-year nursing strategy to try to fill staffing shortages. That includes using virtual nurses to free up on-site nurses from administrative tasks.
CommonSpirit is also expanding a pilot program using new team members including pharmacists, licensed practical nurses, nursing assistants and paramedics in patient care to supplement the limited number of RNs. The nonprofit has been piloting that new team member model in Iowa for the past year and plans to introduce it systemwide over the next five years.
Normally, nonprofit system's heavy investments bolster their bottom lines, but weaker financial markets in its first quarter caused CommonSpirit's investment income to fall to $185 million from $626 million at the same time last year. That slashed nonoperating income by a third, and contributed to net income down 63% year over year to $302 million.