The Catholic nonprofit managed to slash its operating loss by nearly $400 million for fiscal year 2024.
CommonSpirit Health's finances are heading in the right direction, but continue to be inhibited by challenges with payers, the health system said in its fiscal year 2024 earnings report.
Higher patient volume and reduced expenses allowed the Chicago-based nonprofit to trim its operating loss year over year, while claim denials and payment delays kept its bottom line from looking even better.
For the fiscal year that ended June 30, CommonSpirit reported an operating loss of $875 million, a marked improvement from the $1.2 billion loss suffered in the previous year. The system's excess revenue over expenses as adjusted was $503 million, compared to a $82 million net loss for 2023.
Revenue increased 8.2% year over year to $37 billion as expenses jumped 7% to $37.8 billion. Volume growth drove much of the revenue, with the system experiencing improvements in adjusted admissions (6.6%), acute admissions (6.4%), acute inpatient days (2.5%), adjusted patient days (2.4%), outpatient visits (6.9%), and emergency department visits (4%).
However, CommonSpirit pointed to difficulties with payers for holding back greater improvement.
"CommonSpirit's modest revenue increases were offset by continued challenges with payers on denials and timely payment," the system said. "CommonSpirit has taken a firm stance on contract renewals so payers absorb a share of inflation, and processes and terms are improved to ensure providers get paid for the care they deliver."
Denials have been a constant source of frustration for providers. In a recent survey conducted by Experian, more than 75% of revenue cycle management executives said denials are increasing, compared to 42% in 2022.
As hospitals and health systems attempt to push care to lower acuity settings, CommonSpirit also highlighted its ambulatory care expansion, with nearly 60 sites added in the past year.
However, the revenue gains are mostly due to price increases and a reduction in staff, a study finds.
Being acquired by a health system can be a fruitful outcome for independent hospitals, but often comes with sacrifices to realize improved profitability.
Specifically, acquired hospitals increased profitability by around $14 million per year, largely driven by cutting nonclinical staff and passing on increased prices to consumers, according to a study published in the Journal of Political Economy Microeconomics.
Researchers at the University of Pennsylvania’s Leonard Davis Institute of Health Economics analyzed 101 hospital acquisitions from 2013 to 2017 for independent and system-owned hospitals to estimate the conditions under acquisitions.
Though acquired hospitals were more profitable, much of their net gain stemmed from cutting expenses. Of the $11.2 million in annual reduced expenses, 60% were from eliminating jobs mainly in administrative, maintenance and supply, medical records, and pharmacy departments.
The efficiency boost was also only a one-time gain, with system-owned hospitals not showing any further reductions in operating costs after being acquired by a different system.
In addition to slashing jobs, acquired hospitals also raised prices to generate profit. Average inpatient prices after acquisition increased by up to 11%, with prices per hospital stay jumping $856 on average.
The study attempted to investigate the impact of acquisitions on quality, but only one of three measures—readmissions, mortality, and patient satisfaction—showed noteworthy change. Acquired hospitals higher 90-day readmission for commercially insurance cardiac care patients, pointing to quality suffering following corporatization.
“Increases in 90-day readmissions after corporatization signal the potential for reduced quality,” researchers wrote. “A possible mechanism is staff reductions, which could affect support services known to reduce readmissions such as coordinating, tracking, and following up on post-discharge patients.”
As hospitals pursue M&A to improve financial viability, patients are often disadvantaged. However, the study revealed that hospitals aren’t as incentivized to be acquired after the first time, meaning consolidation can have diminishing returns.
Ed Banos shares with HealthLeaders how the construction of two community hospitals will be a game-changer for the health system.
University Health is undergoing a transformation in more ways than one. In the coming years, the San Antonio-based health system will essentially double in size and at the helm of the expansion is a new but familiar face ready for growth.
Now three months into the job as president and CEO of University Health, Ed Banos recognizes that his biggest challenge is the extra volume the system has on its hands. In the short term, the focus is on hiring and managing additional staff to deal with the increased demand. Ultimately, the construction of two community hospitals will allow the system to better serve existing patients and care for additional areas.
The two new hospitals, expected to open in early 2027 in the South and North East sectors of Bexar County, will add to University Health’s two current hospitals and more than 30 clinic and outpatient locations. Significant expansion is on the way but the system has already been adding to its main teaching hospital, University Hospital in South Texas Medical Center, over the past decade.
In 2014, the hospital opened the doors to its 10-story Sky Tower, adding 420 acute care beds to the facility. This past December, the system opened the University Health Women’s and Children’s Hospital on the Main Campus, providing the community with a 12-story, 300-bed location.
“University Health has had a great history of growing the last 10 years and I would say our biggest challenge is the continued growth that we have,” Banos told HealthLeaders. “A lot of people use University Health, we've grown our physician practices, our partnership with UT Health has also put a lot of demand for more surgeries, operating room time. So capacity has been a big push for us because the demand is there and with demand comes the need to hire more staff.”
Pictured: Ed Banos, CEO, University Health.
Banos understands the appetite for expansion at University Health after being with the organization since 2015, when he was named chief operating officer and executive vice president.
On July 1, he replaced longtime CEO George Hernandez, who was with the system since 1983 and served as CEO since 2005.
Now, Banos is eager to see through the growth that his predecessor imagined for the system.
“The most exciting thing is that the vision the board and George had prior was that we cannot just be a one-hospital system,” Banos said. “We are here to serve all of Bexar County and all of South Texas from our specialty related programs and we were never going to be able to provide that service in the future if we were a one-hospital system that was so landlocked in beds.”
The upcoming hospitals in South Side and North East will serve collective purposes, as well as individual ones, Banos stated.
“On the South Side, it's going to be a huge economic generator,” he said. “Our South Side has not had a lot of infrastructure put into it from a community standpoint. Us putting in that hospital now and a couple of housing developments now, you're going to see a real economic development change on the South side, better infrastructure, better paying jobs, which will lead to a lot of other great things.
“On the North East side, it's just important because that's a huge fast-growing area that already has the infrastructure but doesn't have a real good University Health presence. For us, that will be a new market but it will also be a good market where we can take care of patients that had limited access to University Health.”
Both hospitals will also allow the system to integrate technology more seamlessly. Banos admitted the term ‘hospital of the future’ is all too common these days, but that’s what he envisions for the new facilities because technology will be more built into their fabric than at a hospital like the Medical Center.
“We'll be able to really put technology in there,” he said. “So we think of ourselves having what we consider smart rooms that might be able to do telehealth, monitoring, those types of things. We really believe these community hospitals will be much more technologically advanced and capable because they're going to have the infrastructure built in them. With the stuff we're doing in our main hospital, a lot of that is being added on. We're having to put it on right now. But a hospital that will be built with all that infrastructure and all that technology, we'll be able to monitor patients from far away, we'll be able to use artificial intelligence to do a lot of our work that is being done much easier in a hospital that was built that way than one that is retrofitted.”
Achieving growth as a health system right now can be a challenge in the current economic climate. For University Health and Banos, the opportunity is one they’re poised to meet.
Reports of a separation come at a time when the company is struggling to perform, particularly with its insurance arm Aetna.
CVS Health could be on the precipice of breaking up its businesses, sending shockwaves across the industry.
The healthcare giant is reportedly conducting a strategic review and weighing a potential split of its retail and insurance units as it continues to face struggles in those sectors, according to Reuters and The Wall Street Journal.
CVS’ board of directors has retained bankers to facilitate the review, but a decision is not imminent and it’s possible the company won’t experience a significant change, WSJ reported. Hedge fund Glenview Capital Management, which owns about 1% of CVS’ shares, is seeking changes and met with the company’s executives to discuss strategies for improving operations.
"CVS’s management team and Board of Directors are continually exploring ways to create shareholder value," a CVS spokesperson told WSJ. "We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model."
While CVS has pursued an integrated model by offering health insurance through Aetna, primary care through clinics like Oak Street Health, and a pharmacy benefit manager through Caremark, the strategy hasn’t been without its challenges.
To slash costs, the company is planning layoffs that would affect about 2,900 jobs, or almost 1% of its 300,000 employees, due to “continued disruption, regulatory pressures and evolving consumer needs and expectations,” a spokesperson said. The impacted positions are mostly corporate roles and the reductions will not affect front-line workers in stores, pharmacies, and distribution centers.
In August, CVS also announced plans to cut $2 billion in costs to help offset the rising expenses and floundering financial performance of Aetna, which saw its operating income in the second quarter drop 39% year over year.
Additionally, the results spurred the company to let go of Aetna president Brian Kane and hand the insurer’s operations over to CVS CEO Karen Lynch and CFO Tom Cowhey.
Aetna’s woes are driven by increased utilization in Medicare Advantage while star ratings and bonus payments have been adjusted, resulting in diminished reimbursement for payers.
On the retail side, CVS has upped its investment in Oak Street after acquiring the business for $10.6 billion last year.
As other retailers have softened their position in primary care space or exited the space altogether, CVS announced plans to open 25 more Oak Street clinics by the end of 2024. By placing the clinics at its pharmacy sites, CVS believes it can funnel more patients to its primary care offering and turn around the profitability of the business.
However, considering the costs associated with primary care, CVS may be more inclined to distance itself from that unit rather than Aetna.
The pharmaceutical distributor giant is strengthening its oncology business to compete with its peers.
In the latest move by a pharmaceutical distributor to solidify its position in the oncology market, Cardinal Health announced its plan to acquire Integrated Oncology Network for $1.1 billion.
By scooping up the physician-led independent community oncology network, Cardinal will add more than 50 practice sites and more than 100 providers to its oncology practice alliance Navista, allowing the company to jostle in the space with competitors like McKesson and Cencora.
ION’s practices will also gain access to Navista’s AI analytics capabilities, along with insights from the PPS Analytics and SoNaR technology solutions of Specialty Networks, which Cardinal acquired for $1.2 billion earlier this year.
"Driving growth in specialty continues to be a top priority, and we've made investments to expand our offerings through both Navista and our acquisition of Specialty Networks," Cardinal Health CEO Jason Hollar said in a statement. "With their proven model providing extensive support of community oncology across the cancer care continuum and healthcare ecosystem, we're confident Integrated Oncology Network will further accelerate our oncology strategy and enable us to create value for providers and patients."
Dublin, Ohio-based Cardinal continues to invest in specialty drugs and oncology, with the latter arena seeing stiff competition as companies vie for market share.
McKesson announced last month it was acquiring a controlling interest in Community Oncology Revitalization Enterprise Ventures (Core Ventures), a business and administrative services unit of Florida Cancer Specialists & Research Institute, for $2.5 billion.
Last year, Cencora partnered with TPG to seize a minority interest in OneOncology for $2.1 billion.
Calls to block ‘The Big Three’
Cencora’s deal was completed, but Cardinal and McKesson’s acquisitions are still pending regulatory approval. The American Economic Liberties Project and five other advocacy organizations, however, have asked the FTC to block both moves to keep the companies from further dominating the oncology market.
In the letter written to the federal agency, the groups highlighted that Cardinals, McKesson, and Cencora, or ‘The Big Three,’ account for 98% of the wholesaler industry.
When wholesalers wield their oncology market power, it’s “at the expense of cancer patients, who suffer from persistent drug shortages and higher prices,” the letter argued.
“We respectfully request that the FTC apply the same level of scrutiny to block McKesson’s proposed acquisition of FCS’ Core Ventures and Cardinal Health’s proposed acquisition of the Integrated Oncology Network, both of which exceed the threshold for merger review by at least ninefold,” the groups wrote. “Otherwise, American cancer patients will be left to pay the life-threatening costs of ever-increasing wholesaler concentration, casualties in an intensifying ‘cancer care arms race.’”
The move comes amid a series of changes for the health system as it pursues financial sustainability.
Rhode Island-based Lifespan has targeted the executive level for layoffs to save on rising expenses.
The hospital operator has shed 20% of its executive roles, allowing it to save $6 million in fiscal year 2025, according to a statement from Lifespan president and CEO John Fernandez.
"Lifespan implemented a strategic restructure focused on creating a one-system, one-team approach, designed to reduce executive overhead and streamline operations," Fernandez said in the statement. "Starting from the top like this allows us to allocate more resources directly to patient care and support areas."
Lifespan didn’t provide details on which positions will be affected by the restructuring.
The organization turned around its bottom line in fiscal year 2023 by posting $8.6 million in operating income and $37.1 million in net income, compared to a $76 million loss and $186.8 million deficit in 2022, respectively.
Nevertheless, Lifespan continues to deal with increased expenses, largely driven by labor costs. For the nine months ended June 30, the operator saw total operating expenses increase by $253.3 million (10.9%), with compensation and benefits jumping $107.4 million (7.7%). Compensation and benefits costs were spurred by the system adding 421 FTEs, creating an expense of $39.3 million.
As hospitals and health systems pour more resources into their clinical workforce, executive layoffs allow organizations to slash sizeable salaries without eliminating large quantities of staff.
For Lifespan, the decision comes on the heels of the system announcing in June that it will rebrand to Brown University Health in exchange for a $150 million investment over seven years from Brown University.
Lifespan is also acquiring two Massachusetts hospitals from Steward Health Care after announcing the move in August and receiving court approval for the sale earlier this month. The $175 million deal brings Fall River-based St. Anne’s Hospital and Taunton-based Morton Hospital under Lifespan’s control.
Here's what the guiding hands at three organizations recently told HealthLeaders about solving for their biggest pain point.
Whether you're at the helm of giant health system or leading a rural hospital, building and maintaining a sustainable workforce is almost certainly at the top of your to-do list.
As the saying goes though, there's more than one way to skin a cat. In the case of tackling workforce challenges for CEOs, there are multiple ways to go about solidifying recruitment and retention in your organization.
Some leaders are prioritizing the wellbeing of their people and thinking of ways to improve the workplace culture, while others are more focused on reducing the work burden through technology.
Three hospitals CEOs recently shared their approach to the workforce with HealthLeaders. Here's what they had to say:
"We're in the greatest healthcare workforce shortage in the history of the world," Crouse Health CEO and HealthLeaders Exchange member Seth Kronenberg said.
The pandemic is over, but the workforce is still recovering from its effects. One of the impacts has been a drain of workers exiting the industry, which is expected to only get worse in the coming years. By 2028, healthcare is projected to have a shortage of over 100,000 critical care workers nationwide, according to a report by Mercer consultancy.
One of the strategies Kronenberg highlighted to retain workers is to provide them with more flexibility and optionality so they don't feel inclined to leave, whether it's for an opportunity to transfer into another discipline or have more work-life balance.
"Healthcare in general, we all were caught a little flat-footed with, certainly with COVID, all of the opportunities people had to work remote," he said. "There were many more opportunities in other industries, other than the hospital environment. So now we want to make sure we can meet the demands of the workforce as we go forward."
Kronenberg will be among many senior-level leaders from hospitals, health systems, and medical groups at the Workforce Decision Makers Exchange in Washington D.C., from November 7-8 to discuss solutions to building the workforce of the future.
At Cedars-Sinai, Peter Slavin is set to take charge on October 1 as the Los Angeles-based health system enters a new leadership era.
Coming into the role, Slavin shared that he wants to shape the workforce by improving the experience for clinical staff and leaning on technology to counteract the buildup of administrative tasks.
"Clearly the workforce was traumatized during the pandemic and is slowly recovering," Slavin said. "How do you make the work environment as positive and joyful as possible?"
Investing in and implementing generative AI can go a long way to easing the load on physicians, Slavin highlighted. By fighting burnout among your physicians and nurses, CEOs can significantly increase their chances of holding on to staff and keeping them happy.
"One of the sources of trauma that the healthcare workforce is facing is just the trauma caused by spending too much time in front of computers and not enough time in front of patients," he said. "Generative AI and other aspects of artificial intelligence, there's incredible opportunity to shift that balance between time in front of computers and patients and make it much more favorable from clinician standpoint.
"But I would emphasize that I don't think technology is the only answer to the issue. I think it's a variety of other things. It's just management paying close attention to the needs, the voices of the workforce and making sure that we're as attentive as ever to how to make the work environment as positive as possible."
At Oregon-based Grande Ronde Hospital, CEO and fellow HealthLeaders Exchange member Jeremy Davis understands that his organization has to be even more proactive with workforce strategies as a rural hospital.
That means understanding and being attentive to the needs of his staff, which allowed Grande Ronde to cut down on open positions from 220 two years ago to 50-60 in July.
"That took a lot of reflection and introspection about some of our policies and procedures," Davis said. "We have updated our personal policy manual and tried to find ways where we can be a little bit more flexible."
Developing nurses of the future through a nurse residency program and a partnership with a local university is another way Grande Ronde is adding to its workforce. By building a pipeline and training newer generations of workers, CEOs can mitigate the consequences of staff turnover and an aging out of older workers.
"It also just comes down to culture of being an organization that people want to be a part of," Davis said. "We're not perfect. We still have our things that we need to improve on but we're certainly listening. We're certainly trying and when people see an organization that's growing and trying to expand and trying to improve, they want to be a part of that and help determine that destiny."
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The for-profit hospital is further leaning into revenue from outpatient facilities as it aims for financial viability.
Community Health Systems’ subsidiary is buying 10 Arizona urgent care centers as the hospital operator balances divestitures with strategic acquisitions.
The definitive agreement by Northwest Urgent Care to purchase the centers from Carbon Health comes as CHS leans on outpatient services to deliver to financial relief.
Through the acquisition, which is expected to close in the fourth quarter, Franklin, Tennessee-based CHS will expand its integrated health network to more than 80 care sites in Tucson, Arizona.
“Our strategic investments are accelerating the growth of important access points in our health systems and expanding capacity for more patients,” CHS CEO Tim Hingtgen said in a statement. “In markets like Tucson, we are successfully executing strategies that make healthcare accessible and convenient, further improve our competitive position, and generate value for all of our stakeholders.”
CHS’ peers have also been staking a claim on the outpatient side.
Fellow giant HCA Healthcare revealed last November that it wanted to increase its outpatient facilities at each inpatient hospital from 12 to 20 over the next few years, with $2 billion earmarked for a roughly even spend on new inpatient and outpatient locations, according to chief operating officer Jon Foster.
For CHS, outpatient services have aided the system’s financial recovery in recent quarters. Growth in outpatient and same-store surgery volumes in the second quarter allowed the operator to cut its net loss to $13 million, compared to $38 million for the same period in 2023.
“We've been really deliberate about making sure we're putting outpatient access where our consumers want it and need it so that we can continue to capture more of the total share of spend in our markets,” Hingtgen told investors in the second quarter earnings call.
As demand for outpatient services has increased over the years, it has become a profitable investment for providers. Urgent care centers drive utilization but come without some of the expenses associated with inpatient facilities.
While CHS said it is also seeking to grow its inpatient business, the system has pursued divestitures to realign its portfolio.
In July, CHS announced a definitive agreement to offload three Pennsylvania hospitals to WoodBridge Healthcare for $120 million as part of a plan to reap $1 billion in hospital sales this year.
The health system is "built to weather a storm like this," executive vice president and CFO Saurabh Tripathi said.
Ascension's earnings over the past year are a prime example of the turmoil a cyberattack can inflict on a bottom line.
The St. Louis-based hospital operator was on its way to a significant financial recovery before suffering a ransomware attack in May that derailed operations and led to a $1.1 billion net loss for fiscal year 2024.
The cyberattacks on Ascension, Change Healthcare, and other organizations of late have underscored the importance of healthcare leaders investing in cybersecurity to protect against disruptions and lost revenue.
In the case of Ascension, the health system reported a loss from recurring operations of $79 million across the first 10 months of the fiscal year, a marked improvement from the $1.2 billion loss tallied in the same period for the prior year.
However, the ransomware attack caused a considerable downturn over the final two months of the fiscal year, forcing Ascension to finish with an operating loss of $1.8 billion.
"This incident resulted in delays in revenue cycle processes, including insurance verification processes, claims submission, and payment processing, as well as the incurrence of certain remediation costs, which collectively led to negative impacts to results of operations and cash flows during May and June 2024," Ascension wrote in its earnings report.
The system experienced encouraging growth in patient volume across the first 10 months, when emergency room visits were up 2.5%, inpatient surgery visits were up 2%, outpatient surgery visits were up 0.5%, and encounters per provider were up 3.9%. In May and June, same facility patient volumes dipped between 8% to 12% on average from the same period the prior year.
Even after feeling the financial ramifications of the cyberattack, the system's operating margin improved by $1.2 billion from the $3 billion operating loss in fiscal year 2023. Net loss, meanwhile, shrunk from $2.7 billion for 2023 to $1.1 billion, including operating and nonoperating items.
Ascension executive vice president and CFO Saurabh Tripathi said that the operator's focus is on growing patient volume now that it is recovering from May's incident.
"While temporarily impacted by the cybersecurity incident, Ascension's balance sheet and liquidity levels remain strong with sufficient liquidity to continue to provide care for patients," Tripathi said in a statement. "Ascension's solid financial foundation of a strong balance sheet with approximately $41 billion of assets and over $15 billion of liquidity was built to weather a storm like this. With the strong momentum of operational improvements, I am confident Ascension's best days are ahead of us."
The Catholic nonprofit has also been busy divesting assets to trim down its portfolio, shed expenses, and strengthen its core markets.
This year has included deals by Ascension to sell nine Illinois hospitals to Prime Healthcare and a five-hospital system to UAB Health.
The payer is tightening its grasp on the MA market in the Hoosier State.
Elevance Health is upping its investment in Medicare Advantage through its latest deal.
The insurer has reached a deal to acquire Indiana University Health Plans, IU Health’s insurance business, to expand its MA presence in the state and grow the profitability of its private program offering.
IU Health Plans provides MA plans to 19,000 members in 36 counties, in addition to serving 12,000 commercial plans members, according to the announcement.
The acquisition, which is expected to be completed at the end of the year, would result in IU Health Plans operating as part of Elevance’s Anthem Blue Cross and Blue Shield in Indiana.
"Acquiring IU Health Plans reflects our dedication to elevating quality and expanding our product offerings," Dave Mull, Medicare market president of Anthem Blue Cross and Blue Shield in Indiana, said in a statement. "This strategic step aligns with our health equity goals, providing comprehensive access to high-quality care and timely interventions. Through this purchase, we are strengthening our efforts to cultivate healthier communities and improve health outcomes for those we are privileged to serve.”
Elevance downgraded its long-term guidance for its health insurance unit in its second quarter earnings, largely driven by dwindling membership from Medicaid redeterminations and uncertain MA bids for 2025.
Despite seeing membership drop 4.6% and contending with revisions to the MA risk model, Elevance still profited $2.3 billion for the quarter.
Now, as some insurers are scaling back their MA offerings and exiting markets, Elevance is continuing to pour resources into that side of the business.
“It's an incredibly dynamic time in Medicare Advantage and now more than ever, we think it's important to be very thoughtful and rational as we plan for 2025,” Felicia Norwood, executive vice president and president for Elevance’s Government Health Benefits, told investors in the second quarter earnings call. “Despite this environment, Medicare Advantage enrollment is at an all-time high and over 50% of individuals are still choosing MA. That means there's still a clear value for what MA offers and we're committed in the long term to having and operating a profitable and sustainable MA business.”
