CommonSpirit Health’s operations saw year-over-year improvement for the quarter ended September 30, but the nonprofit health system continues to be weighed down by rising expenses and reimbursement challenges.
“Despite strong volume, salary cost management, length-of-stay improvements and higher productivity, CommonSpirit’s financial performance continues to be impacted by expenses growing at a faster pace than revenue,” management said in a press release issued Friday.
“A significant impact to the organization’s revenue comes in the form of challenges with payers on denials and timely payments, and payment increases from both government and non-government payers that do not keep up with inflation,” management said.
The 138-hospital system reported an as-recorded operating loss of $396 million (-4.0% operating margin) for the quarter ended September 30, its first fiscal quarter in 2026, as compared to the prior year’s $331 million operating loss (-3.5% operating margin).
However, after adjustments to normalize delayed income from the California Provider Fee Program, CommonSpirit improved its stature with a $165 million operating loss (-1.6% adjusted operating margin).
Net income in the quarter was $356 million as recorded and $587 million as adjusted, a significant increase over net income of $267 million during the same quarter a year ago.
CommonSpirit’s total operating revenues, as adjusted, grew over $904 million year over year to $10.3 billion, or a 9.6% increase, with net patient and premium revenues growing by $764 million to $9.6 billion (adjusted).
The health system’s volumes on an adjusted admission basis increased 6.0% compared to the same period in the prior year. The acute average length of stay of 4.54 days for the three-month period ended September 30, 2025, was lower than the same period in the prior year of 4.68. Outpatient visits increased 3.7% and ED visits decreased 1.9%.
But operating expenses also jumped to $10.5 billion during the quarter, up $738 million (7.6%) from $9.7 billion during the same period last year, all normalized for the California provider fee program.
Costs increased with supplies per adjusted admission climbing more than 3% compared to the same period last year, primarily due to higher surgical volume and the continued inflationary impact on pharmaceuticals and surgical and medical supplies.
“CommonSpirit is working to reduce supply costs through renegotiation of supply chain contracts and vendor consolidations,” management said.
Salaries and benefits spending increased $267 million (5.5%) to reach $5.2 billion. Management said the increase was “primarily due to an increase in adjusted admissions and continued salary inflation costs, partially offset by improved labor productivity and reduced contract labor spend.”
Supplies spending rose $142 million (9.3%) to a total of $1.7 billion (adjusted), while purchased services rose $335 million (12.1%) to $3.1 billion due to factors like higher medical fees.
The large Catholic nonprofit said it has embarked upon a “systemwide transformation journey with a focus on accelerating results within 12 to18 months and an overall 24 to 30 month implementation plan,” management said.
“The project aims to accelerate meaningful improvement in operating and financial performance and accelerate the transition to a more sustainable cost structure and operating model,” executives said. “The project will look at every aspect of operations across CommonSpirit, building upon results of prior work, accelerating in-flight initiatives and identifying new performance improvement opportunities.”
In its quarterly financial statement, the health system outlined a number of efforts underway to improve operating performance including volume growth with a focus on network integrity and expansion of ambulatory services, improve revenue realization through a focus on clinical denials prevention and escalation of disputes with payers and service rationalization for markets that are underperforming, management said.
Uncompensated care represented 1.6% of CommonSpirit’s total expenses for the quarter.
The health system brought in $727 million in investment income during the quarter, up from $617 million a year ago.
The health system reported unrestricted cash and investments totaled $16.9 billion as of September 30. Normalized days cash on hand decreased by just one day over the year to 156 days.
CommonSpirit employs more than 160,000 people across 24 states and over 2,300 care sites including its hospitals.
The large Catholic nonprofit highlighted progress on key strategic goals, including launching enhanced online scheduling for employed physicians and advanced practice providers in California, Arizona and Nevada through a new scheduling platform. “Results have been impactful, generating approximately 4,670 booked appointments during the first quarter of fiscal year 2026,” management said in the release.
CommonSpirit Health also highlighted that 86% percent of eligible CommonSpirit hospitals received A or B Leapfrog safety grades, compared to 58% of hospitals nationwide. Fifty-five acute care CommonSpirit hospitals were included in U.S. News & World Report’s “Best Hospitals” rankings, it noted.
And, 43% of eligible CommonSpirit hospitals earned 4 or 5 CMS Star ratings, compared to the national average of 37%.
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