This is Scott Becker with the Becker's Health Care podcast. Thrilled today to be joined by Alan Condon. Alan is one of the leaders of the editorial team at Becker's Health Care. He's the Editor-in-Chief. He talks us regularly about what issues he's following in health care. Typically short, quick podcast, talking about a couple of the key financial issues in health care. Alan, why don't you take it away and tell us what are a couple of issues you're watching currently?

Yeah, absolutely. Thanks, Scott. So I'm excited to come back on and really talk about a little bit of good news for hospitals and health systems. I think over the last couple of months and years, we've been following closely the financial trends, obviously a lot of big losses on the back of the pandemic. But really, two big stories I want to touch on today was a slight turnaround in terms of two big health systems, namely Common spirit and then Ascension. So we'll start with Common spirit and then move into Ascension. But Common spirit, obviously, in the last fiscal year reported about a $1.4 billion annual operating loss. Huge, huge loss there, but really starting to turn that corner with some positive strides in the most recent quarter. So most recent quarter really transformed the $440 million operating loss in Q4 2022 into a 356 million dollar operating gain in Q4 2023. Definitely not out of the woods yet, but CSO Dan Morris and his sister still a lot more work to do. But a big, big contributor to those recent losses obviously include labor and supply inflation, really increasing at a higher rate than reimbursement. But this has really been partially offset by what we're seeing a big rebound in patient volumes, length of stay, and physician productivity as well.

So I think Common spirit are really taking these steps to reverse some of those financial trends, which we did see exacerbated by some of those inflationary pressures, as well as payers continued on willingness to be better partners, according to the health system there. A couple So a couple of key call-outs, I'd say, from the most recent quarterly report. You might remember back in 2021, this system launched a big initiative called Common spirit 2026, which is essentially a five-year strategic roadmap, making a lot of progress under this new roadmap. But some of the key areas of focus that they're really focusing on this year and into next year as we get into the final three years of that roadmap really revolve around ramping up work with payers and revenue cycle partners to really making sure it's getting paid more adequately for the services it provides. And another big call out there is also launching a digital consumer experience, increasing access for patients, and also, Common spirit, really evaluating, taking a harder, closer look at some of the markets in which it operates. It's something like really analyzing each market's current position, defining strategies there. Though it's not the primary intent, the health system did say that this might result in further their hospital acquisitions or divestors as well as it continues to really reorganize and restructure its portfolio to get its finances back to a healthy point.

No, it's really fascinating what they've accomplished. I think almost against all odds, what they're doing at scale is amazing, literally amazing. So thank you for that. And tell us about Ascension and what's going on there.

Yeah, absolutely. So Ascension just report the results there on Friday. So we have done, again, big turnaround in terms of Ascension's net income, really 708 million turnaround from Q4 2022 to Q4 2023. Again, Ascension reported about a $3 billion annual operating loss in the previous fiscal year. So really, Really coming out of the blocks a lot better off than they were in the most recent quarters. So again, definitely not out of the walls yet, but really, really taking strides in the right direction. Cfo Liz, for a judge, had said that really focused on improving hospital operations, the main goal, really ensuring long term sustainability for the future there, continuing to take some steps in the right direction. So I'd say Ascension, the key contributors that Ascension attributed to the operational improvement revolved around economic plans focused on volume growth, rates and pricing, and continuing to reduce some of its cost leverage. When it looks ahead, the coming quarter is a key part of its growth plans really revolve around improving service line volumes and also really ramping up ancillary services and continuing to strengthen its ambulatory footprint, where we know that care continues to move out of the inpatient environment towards AFC, EPs, physician offices, outpatient environments.

So really centering a lot of its growth around really ramping up, expanding its ambulatory footprint as well. In terms of labor costs for Ascension, obviously, as a 139 hospital system, It's roughly the same size as Common spirit in terms of the hospitals in which they both operate. But as you know, obviously, labor costs is the number one expense, and it has hospital or health system balance sheet. So it really made conscious strategic efforts to drive down its labor costs over the most recent quarters. So a big, big factor for that for Ascension was outsourcing some of its lab services, which began in the second quarter of 2023 and continues to make what it has describes as labor labor stabilization initiatives across the board. So we did see in the most recent quarter, a 2.1 % drop year over year in its overall labor cost. So it's continuing to make efforts to reduce the labor cost as it looks to make further progress in terms of its operating performance in the coming quarters.

Well, Alan, thank you so much. Fast thing to watch. So throughout the hospital industry, some of this improvement in margins, really shockingly, how positive, given all the threats and challenges out there it's been over the last, the end of 2023 compared to the end of 2022, and it felt like everything was in total crisis mode. It's amazing how quickly the ship has moved in the right direction. And let's hope that that continues.

Absolutely. Yeah, I guess the only thing I'd monitor as well, I think it's important to know, I think Cummins spirit and Ascension both really reinforced in their most recent financial reports that they will be exploring potentially more hospital sales, acquisitions, It's really as they look to get more strategic in terms of where they're operating in their markets, how they're looking at growth, et cetera. So Ascension, just this month completed the sale of Our Lady of Lourdes Memorial Hospital System. It's a health system in New York. The Guthrie Clinic has taken that over. And Mercy Health is also looking to acquire Ascension via Christie Hospital from Ascension in Kansas. So it looks like as we continue to see these big, big health systems, get their finances back on track It looks like definitely hospital divestors, potential acquisitions and markets where it makes sense is going to be a key part of that strategy going forward as well.

Alan, thank you as always for joining us on the Becker's Health Care podcast. Really appreciate you giving us the updates on Common spirit in Ascension. Alan, thank you so much for joining us today in the Becker Health Care podcast.

My pleasure. Great to be back on. Thanks so much, Scott.

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