Becker's Hospital Review

12 CFO / FINANCE COVID-19 pushes CommonSpirit to $1.4B loss in Q3 By Ayla Ellison C ommonSpirit Health, which operates 137 hospitals across 21 states, saw rev- enues rise in the third quarter of fis- cal year 2020 but ended the period with an operating loss. CommonSpirit, formed last year through the merger of San Francisco-based Dignity Health and Englewood, Colo.-based Cath- olic Health Initiatives, recorded its first op- erating gain in the second quarter of fiscal 2020. Revenues and volumes were trending up in the third quarter until the COVID-19 pandemic hit. CommonSpirit said same-facility adjusted admissions were trending at a 2.2 percent in- crease prior to the COVID-19 pandemic. By the end of the third quarter, adjusted admis- sions were up only 0.1 percent on a same-fa- cility basis. For the third quarter, the health system re- ported revenues of $7.32 billion, when nor- malized to include only three months of Cal- ifornia provider fee revenues, up from $7.26 billion in the same period a year earlier. Pa- tient volume declines due to the COVID-19 pandemic in the last month of the quarter hindered further revenue growth. e health system said it incurred significant expenses to secure extra personal protective equipment and reorganize staffing to meet the needs of intensive care and emergency de- partment units. Operating expenses climbed 7.7 percent year over year to nearly $8 billion in the third quarter. CommonSpirit ended the third quarter of fis- cal 2020 with an operating loss of $145 mil- lion. With normalized provider fee income, the health system's operating loss was $387 million in the third quarter. "COVID-19 has had a significant impact on our finances," CommonSpirit Senior Executive Vice President and CFO Daniel Morissette told Becker's. "CommonSpirit has stepped up to respond to this crisis. is came at a tremendous cost." To help offset revenue declines, the health sys- tem implemented several cost-reduction mea- sures that included cutting executive pay, halting most capital projects and reducing discretionary spending. CommonSpirit has also received $713 million in grants made available through the Coronavirus Aid, Relief and Economic Security Act and about $2.6 billion in advance Medicare payments, which must be repaid. Mr. Morissette said the health system is fo- cused on recovery and is already seeing some momentum in terms of patient volume. "We are beginning to safely resume health- care services across our healthcare network," he said. "With a few exceptions, most of our facilities have reopened." In recent months, the health system has ramped up telemedicine services to more than 40,000 visits per week and expanded home health services to reach patients out- side of the hospital and other facilities. Mr. Morissette said expanded telehealth and home health services will continue to be part of CommonSpirit's strategy moving forward. Aer factoring in a $1.1 billion investment loss, CommonSpirit ended the third quarter of fiscal 2020 with a deficit of revenues over expenses of $1.4 billion, compared to pro forma net income of $9.7 billion in the same period a year earlier. Investment results in the most recent quarter were severely impacted by financial market disruptions related to the COVID-19 pandemic. In the third quarter of fiscal 2019, the health system recorded invest- ment income of $666 million. n Mayo Clinic's operating income drops 88% in Q1 By Ayla Ellison M ayo Clinic's financial and operating performance was strong for most of the first quarter, but finan- cial damage from the COVID-19 pandemic in the last half of March pushed the health system's operating in- come lower. Mayo Clinic was in a strong financial position before the COVID-19 pandemic hit. It had a record performance year in 2019, with revenue of $13.8 billion and operating income of more than $1 billion. The health system began 2020 with significant liquidity reserves, but its finances be- gan to suffer in March after it deferred all elective care that could be postponed for at least eight weeks. "Mayo's 2020 first-quarter results spanned two very differ- ent environments, beginning with a continuation of previ- ous year's strong performance for the first 2 ½ months of 2020 and concluding with the ramp down of services and near closure of the outpatient practice on March 23," Mayo said in financial documents released May 15. Mayo Clinic's revenue was $3.2 billion in the first quarter of this year, down nearly 4 percent from the the first quarter of 2019. Net medical service revenue was up less than 1 percent year over year. The health system's operating expenses climbed 2.7 per- cent year over year to $3.2 billion in the first quarter of this year. Mayo saw expenses increase across several catego- ries, including supplies and salaries and benefits. Mayo closed out the first quarter of 2020 with operating income of $29 million, down 88 percent from operating income of $241 million a year earlier. After factoring in nonoperating losses, Mayo reported a net loss of $623.3 million in the first quarter of this year. In the same period a year earlier, Mayo recorded net income of $639 million. To help offset financial damage from the COVID-19 pan- demic, Mayo said it has received $915 million in advance Medicare payments, which must be repaid. The health sys- tem also received about $220 million in grants under the Coronavirus Aid, Relief and Economic Security Act. n

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