Though the nonprofit giant reached clear year-over-year operating improvements during its most recent quarter, leadership at CommonSpirit Health acknowledged the system needs to more quickly tighten the ship ahead of looming industry headwinds and recently outlined for investors its plan to do so.
During an investor presentation held last week, heads of the system recapped results from the quarter ended Sept. 30 that included a normalized earnings before interest, taxes, depreciation and amortization margin of 3.5% (2.7% when excluding one-time items).
That’s up from 2.1% a year prior thanks in large part to across-the-board strong volumes, explained Senior Vice President of Operational Finance John Petersdorf, and, so far, the performance gains have continued through October. More modest operational improvements across productivity (4% year over year), length of stay and supply costs also contributed.
However, the operating improvement isn’t happening “at the pace that we like or need,” he said. “We’re taking further actions to change this path.”
Those efforts are Project Impact, a consultant-guided improvement plan the system unveiled in early October. The turnaround effort will, broadly, explore eight major areas in which CommonSpirit can cut costs and boost revenue generation at national and market levels: digital/IT, business operations (i.e., supply chain, pharmacy), clinical operations, physician enterprise, growth, revenue optimization, capital position and human capital management.
Though the plan has an 18- to 36-month timeline, Petersdorf said multiple teams have already been launched to ramp up work, and certain projects are being accelerated as the organization places a particular focus on “improvements that can be achieved this year on top of the existing improvement work.”
One such area highlighted by Petersdorf as well as Senior Vice President of Finance and Corporate Controller Benjie Loanzon is revenue cycle.
“Although we have seen improvements in our revenue realization goals, we are not there yet in terms of reimbursement rates,” Loanzon said. “Our reimbursement rate increases are still lagging behind our inflation rates. … One of our priorities this year … is to continue to have revenue yield improvements. We remain focused on denial, prevention, appropriate clinical documentation, increasing point-of-service collections, improving the age of our [account] receivables and receiving appropriate increases through negotiation of our managed care contracts.”
Petersdorf added that CommonSpirit is “spending a great deal of effort” here, and, though it is standardizing contract language and elevating denial discussions with payers, “like most of our peers, progress in this area is slow.”
Elsewhere, Petersdorf said CommonSpirit has “several” requests for proposals it’s accelerating to cut its supply chain and purchased services costs, with Loanzon noting ongoing contract negotiations and vendor consolidations. The organization is also expanding its specialty pharmacy programs “in multiple markets” and reviewing how it could improve its ability to keep patients within its care networks, Petersdorf said.
“This work is also about operating differently, as far as what work is performed at the national level, versus the regional level, versus the market level, and reduction friction and duplication,” he said of the network integrity efforts. “While we did a lot of this work at the time of the alignment in 2020, there is still much more opportunity in these areas. Teams have also been allocated to several of our markets which either have strong growth plans that need to be accelerated, and/or [require] short-term financial improvement.”
The push to achieve quicker turnaround goals has organizational support as “the entire organization, from Wright Lasseter [III] as our CEO and the board are fully focused on this work and committed to achieving these results,” Petersdorf told investors. That acceleration—plus ongoing expansion of CommonSpirit’s ambulatory services and inpatient capacity expansions in high-growth markets like Denver and Phoenix—will help the health system as it prepares for industrywide revenue pressures slated to take effect in the coming years due to changes in the One Big Beautiful Bill Act.
“We’ve all done a lot of work assessing impact of H.R. 1, particularly the reduction in various provider fee programs as well as a likely increase in the number of uninsured,” Petersdorf said. “The Project Impact improvement goals were increased to account for these future headwinds.”
CommonSpirit is among the country’s largest healthcare providers, employing more than 160,000 people across 24 states and more than 2,300 care sites including its 138 hospitals. It reported an adjusted operating loss of $165 million (-1.6% adjusted operating margin) for its most recent quarter. For the fiscal year ended June 30, 2025, it logged a $225 adjusted operating loss (-0.6% adjusted operating margin) and $1.1 billion adjusted net income on about $40 billion in total operating revenues.