CommonSpirit Health’s adjusted operating margin inched into the black during the three months ended Dec. 31 as the organization’s leadership touted “noticeable” quarter-to-quarter performance gains stemming from strong volumes and efficiency.
The 138-hospital Catholic nonprofit posted a $78 million operating loss (-0.8% operating margin) for the second quarter of its 2026 fiscal year; however, after normalizing for delayed income received through California’s provider fee program, the system reached a narrow operating income of $2 million (0.0% operating margin).
CommonSpirit also reported $456 million excess revenues over expenses after normalizing. A year prior and after adjustment, the organization had an operating income of $135 million (1.3% operating margin) and a $356 million bottom line, which it noted was bolstered by around $352 million of Federal Emergency Management Agency grant revenue.
“We are encouraged by continued year-over-year financial improvement, driven by sustained efforts across our key strategic initiatives,” Chief Financial Officer Michael Browning said in a release. “Our continued commitment to prioritizing volume growth, ensuring we are paid for the care we provide and a sustained focus on the highest quality care will be instrumental in ensuring long-term sustainability."
Total operating revenues, as adjusted, rose by $403 million year over year to more than $10.5 billion, while net patient and premium revenues grew $609 million to $9.9 billion. The organization highlighted a 3.8% year-over-year increase in patient volumes on an adjusted admission basis and, in regard to efficiency, a decline in acute average length of stay from 4.7 days to 4.63 days.
It also emphasized ongoing work to expand several service lines including ambulatory care and “continued efforts for revenue realization improvements through a focus on clinical denials prevention, escalation and resolution of disputes with payers, collaboration with the organization’s revenue cycle vendor partners and ongoing managed care negotiations to reflect performance,” management wrote in a financial filing.
CommonSpirit’s total operating expenses, as adjusted, rose $536 million year over year to more than $10.5 billion due in large part to the higher volumes and salary increases.
This included a 4.4% year-over-year rise in salaries and benefits, though the system highlighted “deployment of standard department staffing models … as well as reduced contract labor utilization and spend.” These efforts helped bring labor cost as a percentage of normalized net patient revenue from 54.4% in the second quarter of 2024 to 53.2% in the second quarter of 2025, according to the filing.
Supply spending also rose 6%, though supply spending per adjusted admission grew more slowly at 2.1%. The system’s management added that CommonSpirit “is working to reduce supply costs through renegotiation of supply chain contracts and vendor consolidations.”
CommonSpirit said the operating improvements land amid strategic efforts targeting underperforming markets, which could include service rationalization and divestment, as well as a recently announced $1.9 billion decision to terminate services with Tenet Healthcare’s Conifer Health Solutions and bring revenue cycle functions in-house.
It also cast the gains as an early preview of the operating improvements expected to sprout out of Project ImpACT, its multiyear and recently accelerated turnaround plan that straddles everything from IT modernization to clinical quality to human capital management. In fiscal year 2026, CommonSpirit said the plan is prioritizing short-term results in clinical capacity, care access, select discretionary spend and workforce optimization.
“While our positive financial trajectory demonstrates our collective progress, the work is far from over,” Browning said. “We must remain focused on our Project ImpACT initiatives to further strengthen our financial position and continue delivering high-quality care to our communities."
CommonSpirit employs more than 160,000 people across 24 states and over 2,300 care sites including its hospitals. Across its 2025 fiscal year, after adjustments, the system reported a $225 million operating loss (-0.6^ operating margin), nearly $1.6 billion in net income and around $40 billion of total operating revenues.