May 15, 2020—CHICAGO—CommonSpirit Health saw revenues rise but recorded an operating loss in the third quarter of fiscal year 2020, as the impact of the COVID-19 pandemic beginning in March slowed positive trends of the first two months of the quarter.
Revenues for the Chicago-based health system were $7.32 billion, up from $7.26 billion for the same period the prior year, when normalized to include only three months of California provider fee revenues. CommonSpirit recorded an operating loss of $387 million with normalized provider fee net income.
CommonSpirit had continued building on momentum in operational and performance improvement from the second quarter before the focus shifted to the COVID-19 response planning and patient care. The organization was well-positioned to respond to the pandemic and acted quickly to keep its facilities open, protect and support staff and patients, and fulfill its mission of service.
“We were seeing strong results from our strategic approach and operating model implementation before the crisis hit,” said Daniel Morissette, CommonSpirit’s senior executive vice president and chief financial officer. “We were among the first health systems to be affected by the epidemic, notably in our Pacific Northwest region, and naturally our focus was on ensuring that we were able to meet the health care needs of patients and the communities we serve. We will continue our efforts to achieve our long-term organizational goals while meeting the challenges of the COVID-19 response.”
Like other health systems, CommonSpirit saw significant declines in volumes as patients heeded warnings to avoid emergency departments when possible and care facilities delayed many scheduled procedures and services to preserve capacity and reduce the spread of the virus.
CommonSpirit also incurred significant costs to secure additional supplies and personal protective equipment, increase capacity, and retain enough staff for potential COVID-19 volume surges.
CommonSpirit acted quickly to manage expenses to the extent possible and provide care through alternative means, without compromising its ability to treat COVID-19 cases. In particular the system saw a remarkable scaling of virtual visits across the care continuum, and is now conducting more than 44,000 virtual visits each week – approximately 33% of all ambulatory visits, up from 2% in early March. CommonSpirit is also extending its home health care services to reach patients outside the hospital and other facility settings.
Morissette said the organization’s mission and history are strengths in difficult times.
“The pandemic is an unprecedented threat to public health, and we will continue to meet the challenge of providing care for patients and our communities,” Morissette said. “Our founding congregations were the first responders in epidemics more than a century ago, and we are continuing their legacy of service in the current crisis.”
CommonSpirit had reported operating income of $148 million in the second quarter of fiscal 2020, normalized for the California Provider Fee program. Progress had continued into the third quarter, with volumes and revenue trending up before the pandemic hit. The health system also continued to make progress toward implementing its operating model and achieving its ambitious systemwide savings goal.
For the third quarter, same store adjusted admissions increased slightly by 0.1% year over year. This was trending at a 2.2% increase prior to the COVID-19 pandemic. Revenue continued to be well-diversified, with all but one of CommonSpirit’s 13 geographic operating divisions seeing revenue increases for the first nine months of the fiscal year when compared to the previous year.
In February, CMS approved the new 30-month California Provider Fee program which will run from July 1, 2019 until Dec. 31, 2021. In the third quarter, CommonSpirit recorded nine months of provider fee net income, or $359 million. CommonSpirit has presented pro forma results, normalized for the quarter ended March 31, 2020, to include only three months of net income for this program, or $120 million.
Financial Impact of COVID-19
To prepare for a surge of COVID-19 patients and in accordance with direction from state and local governments, in March the health system began cancelling most scheduled procedures and services, which accounted for a large percentage of pre-pandemic revenue. Significant expenses were incurred to procure extra personal protective equipment and reorganize staffing to meet the needs of emergency department and intensive care units.
Morissette said CommonSpirit experienced patient volume declines as high as 40% at its peak in mid-April, resulting in a significant decline in operating revenue, although trends are improving as the organization moves to safely reopen for services.
CommonSpirit has implemented a number of cost-reduction measures to help alleviate the financial impact of the crisis, including temporary executive pay deductions of 10-20%, reductions in discretionary spending such as travel and consulting costs, and halting most capital construction projects. Hiring for non-essential positions has been paused and some expenditures have been canceled or postponed.
Facilities have reduced staff hours due to lower patient census through “flexing” down staff members, instituting mandatory PTO days, and in some cases furloughs. CommonSpirit has changed HR policies to allow employees to go into arrears with their PTO/Vacation Time and covered benefit premiums for eligible employees whose hours have been impacted by our reduced volumes. To date, this coverage has protected the benefits of over 14,000 employees and their dependents.
Financial Relief Initiatives
CommonSpirit is participating in available federal assistance programs, including CARES Act funding, advanced Medicare payments, FEMA grants, and deferments of employer social security tax payments.
The organization has received CARES Act funding worth $713 million in grants – averaging about $5 million per hospital – and six months of advanced Medicare payments worth $2.6 billion, which require repayment within one year or may be subject to interest payments. These funds and advanced payments are primarily being used to purchase additional supplies and personal protective equipment and to make up for operating shortfalls related to the COVID-19 pandemic.
In addition, the organization is also submitting FEMA grant applications in states where it has an acute care presence.
“While we appreciate the support shown by government agencies to date, the funding does not begin to make up shortfalls we have incurred from the COVID-19 pandemic,” Morissette said. “Additional federal funding will be needed to stabilize hospitals as they respond to this pandemic in the months ahead, and we particularly hope that funding is prioritized for safety net hospitals serving patients most in need.”
Resumption of Services
Morissette said all health systems will face continued financial costs in the fourth quarter as COVID-19 expenses continue to accrue as facilities begin to resume elective procedures and other health care services. Ensuring that patients feel safe returning to care facilities will also be key.
Resumption of services at CommonSpirit facilities will be based on an evidence-based, phased-in process built on guidance from national, state and local health officials. At a minimum facilities must have enough capacity and testing, data collection, and risk mitigation for an increase in COVID-19 cases.
Facilities across CommonSpirit’s network are expected to resume some services in May. A number of safety measures for patients and staff are being implemented. Virtual health care services will also continue to play a major role moving forward.
Recognizing that the health care delivery system will likely see significant changes as a result of the pandemic, CommonSpirit has also stood up cross-functional, inter-divisional teams focused on strategic and operational planning in the short and long terms.
“Health care delivery was changing before the COVID-19 crisis,” Morissette said. “As we manage through these difficult times, we are planning to restore all of our care services while continuing our growth and transformation strategies to meet the needs of people and communities in the future. As always, our priority is to ensure the care and safety of our patients and staff.”
About CommonSpirit Health
CommonSpirit Health is a nonprofit, Catholic health system dedicated to advancing health for all people. It was created in February 2019 by Catholic Health Initiatives and Dignity Health. With its national office in Chicago and a team of approximately 150,000 employees and 25,000 physicians and advanced practice clinicians, CommonSpirit Health operates 137 hospitals and more than 1000 care sites across 21 states. In FY 2019, Catholic Health Initiatives and Dignity Health had combined revenues of nearly $29 billion and provided $4.45 billion in charity care, community benefit, and unreimbursed government programs.
Learn more at commonspirit.org.