CommonSpirit's California 'mega division' is tackling inflation head-on

Chicago-based CommonSpirit Health has restructured over the last several months, reconfiguring divisions to create synergies and efficiencies across 140 hospitals and more than 1,000 care sites.

One of the big changes occurred in the California market. CommonSpirit unified California hospitals as one mega-division to operate more effectively.

"We feel like as one division we can have better discussions with the legislature on policy, labor, seismic implications for our hospital infrastructure, and we just feel like it's a stronger presence when we're talking about our 31 hospitals in the state," Shelly Schorer, CFO of CommonSpirit's California division, said on the "Becker's Healthcare Podcast."

Ms. Schorer and her team have their sights set on growth and expansion to provide easier access to care. But like most hospitals and health systems, CommonSpirit is facing financial challenges amid inflation and workforce shortages. The pandemic negatively impacted the health system's margins, and CommonSpirit saw a shift in patient volume that hasn't fully returned to pre-pandemic levels.

"We had less elective procedures due to restrictions through the height of the pandemic, so we saw more medical procedures, more sick patients and less of higher revenue [services]. That impacted our margins and our cash flow," said Ms. Schorer. "We're not through that yet."

CommonSpirit reported around 10 percent inflation in some areas, Ms. Schorer said, with labor costs increasing around 25 percent and pharmaceutical costs elevating about 19 percent. Reimbursement hasn't kept pace with inflation, which has gone up significantly in the last few years.

"When you have an increase in your expenses as far greater than your increase in your incoming revenue, that means you have to make modifications, and that's one of the things that we're doing as a national organization," she said. "We're looking at synergies, where we can combine things or do things on a national level that will reduce costs or do economies of scale that will help us offset some of that inflation we're seeing."

Ms. Schorer said she is also looking at combining labor pools for "behind the scenes" labor to create efficiencies and optimize resources. The California division has committed to sharing resources and not duplicating necessary aspects of running a healthcare business. They are also considering new partnerships in areas such as post-acute settings, behavioral health, skilled nursing facilities or joint venture outpatient surgery centers.

"Sometimes we look to partners to help us with cost mitigation, and sometimes we're leveraging our power as a state or national organization," said Ms. Schorer. "It's very fluid. It's something that still needs analysis and is ongoing. Healthcare is one of those industries that changes constantly, and it's so personal. You're dealing with people's lives…We just are constantly evolving and reacting to new technology, patient needs, community needs and then still trying to manage the efficiencies and the cost and reimbursement of healthcare where we can remain sustainable."

In California, CommonSpirit has multiple hospitals in close proximity that are now working together to consolidate services. Ms. Schorer said she is constantly looking at whether hospitals are providing the right level of care efficiently, and identifying areas where the system is spending too much money as places to forge new partnerships.

"We want to make sure what we are managing costs that we can manage, whether it's our labor, our patient flow, or access to care, making sure that we have the patients discharged to the appropriate post-acute setting, but also without impacting our quality and patient experience and safety," she said. "One of the things we really focus on in California is safety and quality, and so making sure that you're pulling all of the levers at the same time while you're doing growth or maintaining your presence to support the community. We are also making sure we don't impact our excellent quality and safety, and the patient's experience while we're still trying to manage costs in a high inflation time that we're in right now."

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