CommonSpirit reports operating loss after hard hit from omicron variant

During its second quarter of fiscal year 2022, CommonSpirit Health stated it lost some revenue as a result of higher labor and supply costs, along with increased patient stay length—issues associated with the pandemic.

The Chicago-based system, formed through a 2019 merger of Catholic Health Initiatives and Dignity Health, reported $81 million in operating loss on $17.43 billion in operating revenue for the quarter, a 0.9% negative margin similar to its fiscal year 2020 losses.

Overall, CommonSpirit’s operating revenue increased by nearly 9%—from $16 billion in the second quarter of 2021, to more than $17 billion in 2022, the company announced during its Wednesday investor call.

The not-for-profit health system’s operating earnings before interest, taxes, depreciation and amortization fell from $1.5 billion in the second quarter of 2021 to $944 million in the current quarter, an EBITDA margin of around 5%.

Although the company is remaining financially stable, these losses are a reflection of the heavy toll of COVID-19, and, more specifically, the omicron variant, said Dan Morissette, CommonSpirit’s chief financial officer, during the earnings call.

He said staffing costs, especially for contract workers, as well as inflation, increased lengths of patient stay, employee turnover and other pandemic-related costs, have comprised the quarter’s high expenses.

Compared with 2021’s second quarter, labor expenses, per adjusted admission, rose 12.3% due to increased staffing costs affecting providers nationwide. In addition, supply costs increased by 11.6%, driven by inflation and the need for supplies, in response to the omicron surge.

“This quarter demonstrated how important it is that we are proactive and strategic about managing the impacts of the COVID-19 pandemic,” Morissette said in a statement. “Our priority now must be meeting the increased demand for care and doing all we can to support our employees, while also focusing on efficiencies as we continue to see ebbs and flows from the pandemic.”

Yet, CommonSpirit also saw some significant gains from the prior year’s quarter, including a return in patient volume and higher acuity admissions, leading to a 9.3% increase in net patient and premium revenue.

The system’s volume recovery, in addition to its joint ventures and new affiliations with institutions like Baylor College of Medicine and Virginia Mason Medical Center, led to an operating revenue increase of $1.3 billion.

Adjusted admissions grew by 1.5%, compared to the prior year, while outpatient visits rose by 5.1% and emergency department visits increased by 16.6%.

Morissette said CommonSpirit is focused on taking steps toward worker retention by augmenting its staff, while also supporting its current employees and management with pay incentives and resources.

The system is hiring nurses virtually to take care of admissions, discharges and transfers in order to streamline operations. Eventually, CommonSpirit said it intends to decrease turnover with its system-wide residency program and reduce its dependency on travel nurses.

CommonSpirit also plans to purchase Colorado Plains Medical Center in Colorado and Western Plains Medical Complex in Kansas for around $135 million in the coming year.

To offset COVID-19 costs, CommonSpirit has applied for provider relief funding from the Health and Human Services Department and the American Rescue Plan Act of 2021, in addition to the CARES Act funding it received over the past couple years.

While there will likely still be labor and supply pressures continuing through 2022, Morissette said CommonSpirit’s expenses should moderate somewhat and the company’s larger scale will help in keeping costs lower.

He said CommonSpirit’s goal in the near term is to get “back to baseline.”

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