Dive Brief:
- CommonSpirit Health saw operating income for the second quarter of 2020 increase $40 million in the first gain for the system since it was created from the February 2019 merger of Dignity Health and Catholic Health Initiatives, according to financial information published Tuesday.
- Adjusted admissions and patient days for the nonprofit system were up slightly for the quarter and outpatient visits increased 4%. Emergency room visits, however, were down. Gross outpatient revenue was just above 50% of total patient services for the quarter and six-month period.
- One of the largest not-for-profit systems by revenue, it reported $151 million in charity care, which was 2% of total expenses. That was an increase from $96 million in the prior-year period.
Dive Insight:
The documents paint a better picture for CommonSpirit, which has struggled financially since its merger was finalized a year ago. The results assume the operations of CHI and Dignity, which were combined as of July 1, 2018.
Olga Beck, senior director for U.S. public finance at Fitch Ratings, told Healthcare Dive that CommonSpirit's Q2 was the type of quarter investors wanted to see, particularly with outpatient growth outpacing inpatient numbers. But after the disappointing first quarter, the last half of the fiscal year will need to show progress as well.
The system has a lot of competitors across its various footprints so has to stay on its toes, she said. "They have to continue to establish regional presence, and I think that they will," she said. "But right now they needed to just post better numbers."
The Chicago-based health system claims the merger will save $2 billion over the next four years, mostly through support functions that don't relate directly to patient care, including consolidation of vendors, supply chains and data centers as well as legal and marketing services.
The system, which operates 137 hospitals across 21 states, announced last month it will abandon its dual CEO structure later this year. Former Dignity head Lloyd Dean will serve as sole CEO after Kevin Lofton, who previously led CHI, retires July 1.
CommonSpirit CFO Daniel Morissette said in a statement that the second-quarter results show the system is "gaining traction with the strategy and operating model" put in place, adding the organization is growing in key markets and service lines while keeping expenses in check.
He also acknowledged headwinds. "We still have significant work to do to realize our ambitious growth and savings goals," he said.
The organization's operating gain for the quarter was a $127 million increase over the prior-year period operating income loss of $87 million. The improvement was due in part to a $16 million real estate gain in Texas and higher rental revenues, as well as "favorable joint venture results." Operating loss for the six month period ending Dec. 31, 2019, was $187 million.
The operating cash flow margin was 7.1%, a figure that Moody's analyst Brad Spielman said showed the system as on track for the year. The balance sheet's cash days on hand is also an important measure that is "holding steady and consistent with expectations," he told Healthcare Dive.
CommonSpirit had operating revenue of $7.5 billion for the quarter, up from $7.2 billion a year earlier. Net income was at $579 million for the quarter. Net patient and premium revenues were up $130 million, a nearly 2% year-over-year increase the health system attributed in part to a stable payer mix.
Looking forward, the system said it anticipates growth in video visits and community health initiatives, as well as a focus on home-based care to manage length of stay and avoid expensive re-admissions. The system also plans more movement on social determinants of health, building on partnerships like a recently announced program with Lyft to provide transportation for patients.