CommonSpirit Health recently made more than $500 million by selling a portion of its stake in the revenue-cycle management company Optum360, the system’s finance chief said Friday.
The Chicago-based system disclosed in its financial filing for the quarter ended March 31, 2021 that it had benefited from a $523 million pre-tax gain on the sale of joint venture shares in March. Without that gain, the health system would have lost money in the quarter.
Dan Morissette, chief financial officer of the not-for-profit system, explained on an investor call that CommonSpirit sold a portion of its investment in Optum360. Dignity Health, one of the two systems that combined to form CommonSpirit in 2019, launched the company in 2013 in partnership with Optum, a subsidiary of Minnetonka, Minn.-based insurer UnitedHealth Group. Dignity became a minority owner.
Since then, Optum360 appears to have grown steadily. It now manages $65 million in annual billing and four out of five hospitals rely on at least one Optum360 solution, according to the company’s website.
“We had the opportunity to realize some of the gains from monetizing this investment,” Morissette said. “We do still have a meaningful investment remaining in Optum360.”
At the time of Optum360’s launch, Dignity signed a 10-year contract to use the company for revenue-cycle management at a cost of $250 million per year.
Factoring in that gain and federal stimulus grants, the 140-hospital system posted $539 million in operating income in the quarter ended March 31, 2021. Excluding those items, CommonSpirit lost $117 million on operations in the recently ended quarter.
CommonSpirit has just under 500 COVID-19 patients in its hospitals in this, down markedly from a high of almost 3,700 in January, Morissette said.
“After a full year of managing the COVID-19 pandemic across our 140 hospitals, we continue to be enormously grateful for the dedication of our employees and our caregivers,” he said.
The system projects hitting $350 million to $400 million in merger-related synergies and other cost savings in its fiscal 2021. Morissette said CommonSpirit has made progress on labor spending, purchased services expenses, vendor and discretionary spending. Travel and consulting expenses were down 30% year-over-year. The system has also streamlined administrative functions.
“Despite ongoing challenges presented by COVID, we remain cautiously optimistic that we will achieve our synergy goals that were established for fiscal 2021,” he said.
CommonSpirit announced in 2019 a plan to cut $2 billion in costs in four years from a combination of merger-related synergies and performance improvement strategies. Morissette said Friday that while the pandemic has delayed that timeline by 12 to 18 months, he still expects to meet the $2 billion goal.
Morissette was light on detail when asked to elaborate on this week’s news that Essentia Health will no longer buy 14 CommonSpirit hospitals in North Dakota and Minnesota.
“We always attempt to reach agreements but as you know … we were just not able to do that in this particular case,” he said.