The not-for-profit recently reported its financial results for the second quarter of its fiscal year 2024, and there are several reasons CFOs should care.
CommonSpirit Health’s latest earnings report shows a significant improvement in financial performance compared to the prior year, driven by higher volume levels, efficiency initiatives, and a reduction in length-of-stay.
However, the health system continues to face challenges such as salary and supply cost inflation outpacing payer reimbursement rates and an increasing rate of denials from some payers.
So how did these improvements and challenges affect CommonSpirit’s overall performance and why should CFOs take note? Let’s take a look.
The numbers
The health system reported operating revenues of $9.35 billion and operating expenses of $9.44 billion for the quarter ended Dec. 31, 2023, compared to $8.19 billion in revenues and $8.63 billion in expenses for the same period last year.
The operating loss was $87 million, with EBITDA of $484 million, resulting in an operating margin of -0.9% and an EBITDA margin of 5.2%, both normalized for the California provider fee program.
This marks a significant improvement from the prior year, where the EBITDA margin was only 0.6%.
The analysis
One key driver of the improved financial performance was an increase in volumes, with adjusted admissions rising by 6.9% and outpatient visits increasing by 3.3% in the second quarter. Additionally, efforts to reduce the average length of stay from 4.98 days to 4.77 days have contributed to the financial improvement.
Despite these positive trends, CommonSpirit continues to face challenges, particularly in managing the impact of inflation on costs and dealing with an increasing rate of denials from certain payers.
According to the report, the health system is working closely with health plans to reduce prior authorization denials and speed up reimbursement processes.
Additionally, CommonSpirit is expanding its ambulatory footprint, enhancing workforce retention programs, and identifying programs to further establish its essentiality in the communities it serves.
CFO Dan Morissette acknowledged the progress made in improving financial performance but emphasized that there is still work to be done.
In the earnings report, he highlighted the health system's focus on exploring growth opportunities, implementing a sound investment strategy, and containing costs to further improve financial performance.
Morissette also emphasized the importance of providing essential care and services to the communities served by CommonSpirit.
Why should other CFOs care?
There are several key strategies from CommonSpirit's earnings report that can help CFOs boost their own performance.
First, it’s obvious that focusing on volume growth and efficiency initiatives can have a positive impact on financial performance. Keep prioritizing efforts to reduce length-of-stay and manage the continuum of care to help improve margins and operating results.
Second, CFOs should continue to be vigilant about managing costs in the face of inflationary pressures, even as numbers start to ease. Pay close attention to salary and supply cost inflation and work to contain costs where possible to prevent them from outpacing reimbursement rates.
As we know, reducing labor costs, especially for contract labor, has been top of mind for CFOs ever since the pandemic started to ease.
Lastly, engage with payers to address denials and reimbursement delays. Collaborate with health plans to reduce prior authorization denials and streamline reimbursement processes to ensure timely payments for services provided.
Amanda Norris is the Director of Content for HealthLeaders.
KEY TAKEAWAYS
While challenges remain for CommonSpirit Health, particularly around managing inflation and payer denials, the health system's focus on volume growth, efficiency initiatives, and community engagement is driving improved results.
CFOs can learn from CommonSpirit's report and apply a few key strategies to their own organizations to drive financial performance.