Chicago-based CommonSpirit Health is undertaking several major transformation projects at once.
The 136-hospital system is in the final weeks of bringing its revenue cycle in-house from Conifer Health Solutions, midway through consolidating onto a single instance of Epic, nine months from a Workday ERP cutover and less than three months from collapsing five regions into three service areas. All of it sits under Project Impact, a program CommonSpirit expects to generate $6 billion in financial improvement over five years.
“We’re not afraid of making deliberate, long-term strategic investments, even if it means incurring short-term costs and headwinds,” CommonSpirit Senior Executive Vice President and CFO Michael Browning said on the system’s Oct. 2 earnings call.
Those short-term costs are built into the guidance. CommonSpirit set a 4.6% EBITDA margin target for fiscal 2027, a figure that absorbs roughly $675 million in one-time costs tied to its enterprise initiatives. The system projects a 6.7% margin in fiscal 2028, the level it pegged as break-even cash flow, and 8% in fiscal 2029. President and CEO Wright Lassiter III had outlined an EBITDA margin goal of 8% to 10% earlier this year.
The fiscal 2027 target lands close to where fiscal 2026 ended. CommonSpirit posted $1.9 billion in operating EBITDA on more than $42 billion in operating revenue, a 4.5% margin, up from 3.7% the prior year. Those results leaned on an accounting change that booked 18 months of California provider fee revenue in a single year, along with $402 million in FEMA revenue and $133 million in net income from employee retention credits.
“Excluding significant non-routine items and the change in the accrual for provider fees, our financial performance is not where it should be,” said Mary Tyren, interim senior vice president and corporate controller. “Excluding the provider fee programs, our revenue growth is still outpaced by expense growth. We have many cost initiatives in place, but we have a lot of work to do to close this gap.”
Below the EBITDA line, the system remains in the red. CommonSpirit reported a $430 million operating loss before special charges in fiscal 2026, a -1% margin, narrowed from a $687 million loss the year prior. Including $2.8 billion in special charges, most of them tied to the Conifer exit, the operating loss reached $3.2 billion.
“Fiscal year 26 was built on a lot of one-time adjustments, and we’re not planning on those one-time adjustments going forward,” Mr. Browning said.
In fiscal 2027, Project Impact targets more than $1 billion in cost reduction through workforce rationalization, clinical standardization, supply chain adherence and purchased services standardization. A spans-of-control review of leadership has already produced more than $103 million in run-rate reductions, and the system aims to cut central function overhead from 15.8% of operating revenue to 14.5%.
By early January, CommonSpirit will move from five regions to three service areas — West, Central and East — and consolidate its acute care entities into a single entity per state under the CommonSpirit name. All 27 of its critical access hospitals have been unified under a single rural operating model within the East service area. Each service area president will sit on the enterprise leadership cabinet.
Mr. Browning said the transition “allows us to deliver on our broader strategy by eliminating duplication, layers, complex legal structures, and other impediments to a unified realization of One CommonSpirit.”
The health system has also narrowed its hospital footprint in 2026. CommonSpirit has sold or is working to sell eight hospitals this year, including the four-hospital Trinity Health System in Steubenville, Ohio, which transferred to Pittsburgh-based UPMC Oct. 1, and four North Dakota hospitals — one sold in March and three pending — to Grand Forks, N.D.-based Altru Health System. Executives expect roughly $500 million in combined proceeds from the Ohio and North Dakota deals and a sale of assets to Mercy Care Plan in Arizona.
“The goal of the proceeds would be to reinvest back in our ministries,” Mr. Browning said.
On the revenue side, CommonSpirit’s transformation bet rests on the Conifer exit. CommonSpirit agreed earlier this year to pay Dallas-based Tenet Healthcare about $1.9 billion over three years as Tenet regained full ownership of the revenue cycle company, while Conifer will pay CommonSpirit roughly $540 million to redeem its 23.8% stake. At the time, the system’s cost to collect ran about double the industry average. More than 1,900 employees have been rebadged to CommonSpirit, and the system expects to be fully off Conifer when its South region converts Oct. 30, two months ahead of the Dec. 31 contract termination. Executives expect cost to collect to fall from about 6% to below 5% by the end of fiscal 2027, with an ultimate benchmark of less than 3%, and project the revenue cycle transition will break even in fiscal 2028 and turn cash flow positive in fiscal 2029.
CommonSpirit has also centralized its commercial and managed care contract negotiations nationally under single leadership, a shift the system said produced rate parity across regions and $445 million in incremental net revenue in fiscal 2026. It has paired that with a harder line on underpayment. Little Rock-based CHI St. Vincent, CommonSpirit’s four-hospital Arkansas system, went out of network with Arkansas Blue Cross and Blue Shield Sept. 1 after the two sides failed to reach a new agreement.
“When health plans refuse to recognize the true cost of clinical delivery, we will not subsidize their business model,” Mr. Browning said.
CommonSpirit’s revenue cycle insourcing initiative is helping to accelerate its Epic transition by two years. About 67% of CommonSpirit’s facilities are now on Epic, and the system has reduced its EHR count from 19 to nine over the past 24 months. Five states in the South region convert at the end of October, the Pacific Northwest follows next spring and the West Coast is slated for fiscal 2028, with completion by the end of fiscal 2030.
The Workday ERP go-live, scheduled for July 1, 2027, will retire more than nine legacy platforms. To limit operational risk, CommonSpirit will temporarily pause its Epic rollout during the Workday go-live.
Fitch highlighted the risks of undertaking several large-scale transformation initiatives simultaneously when it affirmed the system’s “A-” rating Sept. 16 but lowered its outlook to negative. Fitch said in its report that the system “will be required to implement these initiatives successfully, on pace and at the articulated levels, in order to both fund capital needs and overcome expected industry headwinds.”
“I think their concern is how many large-scale projects we’re doing all at the same time,” Jean Ham, system vice president of treasury, said on the call. Ms. Ham added that the nearly completed revenue cycle transition “is a great demonstration of our ability to make decisions and implement what we said we’re going to do.”
Mr. Browning said that the success of CommonSpirit’s transformation goals rests on the team.
“I think Wright Lassiter has assembled one of the best teams in healthcare, and I have a lot of confidence in this team that we’ll be able to deliver on what we’re committing to,” he said.
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