CommonSpirit ends fiscal year with $582M operating loss, lays out plan for improvement

CommonSpirit Health, which operates 142 hospitals in 21 states, reported an operating loss in the fiscal year ended June 30, but top executives say they expect the system's performance to improve. 

Chicago-based CommonSpirit was formed through the Feb. 1 merger of San Francisco-based Dignity Health and Englewood, Colo.-based Catholic Health Initiatives. Since the merger occurred less than a year ago, financial and operating results were presented on a pro forma basis, using accounting records of CHI and Dignity Health as if they had been combined for the full fiscal 2019. 

CommonSpirit reported operating revenues of $28.8 billion in fiscal 2019, down from $29.2 billion in the year prior. The health system said the year-over-year decline in revenue was largely attributable to California provider-fee program income recognized in fiscal 2018. Last year's results also included income from the operations of U.S. HealthWorks and the gain on its sale. 

After factoring in a year-over-year increase in operating expenses, CommonSpirit posted an operating loss of $582 million in fiscal 2019. That's compared to operating income of $244 million a year earlier. The system's nonoperating income dropped from $966 million in fiscal 2018 to $328 million. 

CommonSpirit CFO Daniel Morissette told Becker's Hospital Review the results were expected given the scope and complexity of the merger. 

"We're simply not where we need to be in terms of performance," he said. "The whole organization is motivated and is aware of the work that needs to be done to improve these results."

Over the past eight months, CommonSpirit has centralized key functions, such as IT and contracting, and established 11 geographic divisions across 21 states. It has also begun to scale successful service lines and executed a $6.5 billion debt restructuring, which drew demand from investors and support from financial analysts. 

Looking ahead, Mr. Morissette said a strong operating model and a systemwide performance plan will help CommonSpirit achieve an 8 percent EBIDA margin within the next four years. The plan will also help the system build healthier communities, which is the real purpose behind the merger, he said. 

CommonSpirit's CEOs Kevin E. Lofton and Lloyd H. Dean reiterated those goals. 

"CommonSpirit has made huge strides toward creating a bold new health organization that will deliver care for many years to come and improve the health of communities across the country," Mr. Dean said in an earnings release. "We know this is not an easy task and that we face challenges in the near term, which is why we are investing in a strong, disciplined business model that will help the organization evolve to meet the changing health care needs of our communities."

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