In its second quarter of fiscal 2020, CommonSpirit Health posted its first operating gain since it was created by a 2019 merger, indicating the system is making progress in turning its finances around.
The Chicago-based health system reported $40 million in operating income on $7.5 billion in operating revenue in the second quarter of its fiscal 2020, which ended Dec. 31, a positive swing from the health system’s $87 million operating loss on $7.2 billion in revenue in the prior-year period. The 2018 period is presented on a pro forma basis assuming the operations of Catholic Health Initiatives and Dignity Health were combined as of July 1, 2018. The two systems completed their merger on Feb. 1, 2019.
The not-for-profit health system’s earnings before interest, taxes, depreciation and amortization grew 7.1% year-over-year to $528 million, from $389 million in the prior-year period. Net income was $579 million in the quarter, compared with a deficit of revenue over expenses of $724 million in the prior-year period.
Expenses increased 1.4% year-over-year in the second quarter to $7.4 billion, compared with a revenue increase of 3.2% in that time. That’s a smaller expense increase than the 3.8% uptick the health system experienced in the first quarter of its fiscal 2020.
“These results demonstrate that we are gaining traction with the strategy and operating model we’ve put in place,” Dan Morissette, CommonSpirit’s chief financial officer, said in a statement. “A year into our new organization we have a clear vision and well-defined strategy, we are growing in key markets and service lines, and we are keeping our expenses in check.”
On the volumes front, acute admissions grew just 0.3% year-over-year to about 208,000 in the second quarter. Adjusted admissions rose 2% in that time. Acute inpatient days dropped 0.7% to 932,000. Outpatient visits, by contrast, grew 4.1% to 6.6 million. Emergency department visits dropped 2.3%.
CommonSpirit’s home and hospice care business grew 10.5% in the first half of the fiscal year compared with the previous year, and nearly 30% of the company’s revenue came from value-based agreements with payers, employers and government programs.
CommonSpirit also presented its financial results to include income from the fiscal 2020 California Provider Fee Program, which has not yet been recorded. In that scenario, its net income would have been $687 million in the quarter, its operating income $148 million and its EBITDA $636 million.
CommonSpirit announced last month that one of its two CEOs, Kevin Lofton, will retire this summer, making Lloyd Dean the health system’s sole CEO.
The operating gain is a positive sign for CommonSpirit, which had been losing money since the merger, including a year-over-year operating loss of $227 million on $7.2 billion in operating revenue in the first quarter of fiscal 2020, which ended Sept. 30, 2019.
Morissette’s statement went on to acknowledge the challenges ahead.
“We still have significant work to do to realize our ambitious growth and savings goals, but there is no question that these results represent a step in the right direction,” he said.
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