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CommonSpirit posts the first operating gain from the completion of the merger

Published Date | 2020 February 25

CommonSpirit Health emerges with $29B CHI-Dignity Health merger

CommonSpirit Health saw operating income increase of $40 million in the first system gain for the second quarter of 2020 since it was created from the merger of Dignity Health and Catholic Health Initiatives in February 2019, according to financial information published on 18 Feb 2020. Adjusted admissions and patient days were up slightly for the quarter for the non-profit system, and outpatient visits rose by 4%. However, emergency room visits were down. Gross outpatient sales for the quarter and six months was just over 50% of overall patient services.

One of the largest revenue-based non-profit organizations, it registered $151 million in charity care, reflecting 2% of total expenses. That was a $96 million rise over the prior-year period.

In January 2020, the merger between Catholic Health Initiatives and Dignity Health was completed, formally creating the new CommonSpirit Health Catholic nonprofit health system. The new $29 billion network is the country's largest revenue-based, non-profit health system with over 700 treatment sites and 142 hospitals, as well as research programs, virtual care services, home health systems and living communities. The combined program employs 150,000 staff and has 25,000 physicians and advanced practitioners.

The papers paint a better picture for CommonSpirit, which has struggled financially since finalizing its merger a year ago. The results assume CHI and Dignity operations, which were combined as of 1 July 2018.

Olga Beck, senior director for U.S. public finances at Fitch Ratings, explained that the Q2 of CommonSpirit was the type of quarter investors wanted to see, especially with outpatient growth outpacing the number of hospitalized patients. But the last half of the fiscal year will also need to show progress after the disappointing first quarter.

The Chicago-based healthcare system claims that the merger will save $2 billion over the next four years, mostly through support functions that are not directly related to patient care, including vendor consolidation, supply chains and data centers as well as legal and marketing services.

The network, which runs 137 hospitals across 21 states, announced last month its dual CEO structure will be discontinued later this year. When Kevin Lofton, who previously headed CHI, retires in July 2019, former Dignity head Lloyd Dean will serve as sole CEO.

In a statement, CommonSpirit CFO Daniel Morissette said that the second quarter results show that the system is "gaining traction with the strategy and operating model" put in place, adding that the organization is growing in key markets and service lines while keeping costs under control.

The financial benefit for the quarter of the company was an improvement of $127 million over the previous year's operating income loss of $87 million. The improvement was partly due to a $16 million real estate gain in Texas and higher rental income, as well as "favorable joint venture results." Operating loss of $187 million for the six-month period ending Dec. 31, 2019.