Healthcare Business News

Ascending in healthcare

Roman Catholic Ascension Health has made a Fortune 500 name for itself with business acumen, risk-taking and efficiency

By Melanie Evans
Posted: May 14, 2007 - 12:01 am ET

Ascension Health saw an offer too good to refuse when a rival cancer hospital offered $20 million for its safety net hospital in east Detroit.

The Motor City lost about 10% of its residents during the first half of the decade and nearly one-third of those who remain live in poverty. Ascension’s St. John Detroit Riverview Hospital hemorrhaged $9 million last year and estimated losses for 2007 will likely reach $22 million when the 285-bed hospital closes its books at the end of June. And at least 90% of Riverview Hospital’s patients carry public safety net insurance or Medicare.

So when the Barbara Ann Karmanos Cancer Institute made an offer, Ascension—the largest U.S. not-for-profit health system—jumped.

“We concluded that … a midsized community hospital inside an urban community is not economically viable,” said Elliot Joseph, president and chief executive officer of Ascension’s nine-hospital subsidiary St. John Health System. One less Detroit hospital will help wipe out extra hospital capacity created by the city’s dwindling population, he said. Ascension’s larger flagship on the border of Detroit’s eastern suburbs is home to more profitable specialties, leaving Riverview Hospital struggling to attract patients or offset losses. The hospital’s steep losses jeopardized St. John’s community outreach and charity care across Detroit, he said. Joseph called the deal a “one-time opportunity” to avoid the blight of a shuttered hospital.

The tentative sale underscores how Roman Catholic-affiliated Ascension has grown in less than 10 years to become a financial and commercial powerhouse within healthcare. At a time when not-for-profit healthcare faces criticism for its care of needy and vulnerable patients, Ascension’s market-friendly approach stresses innovation, efficiency and financial strength with an urgency that would impress Wall Street.

Riverview is the latest struggling hospital Roman Catholic-affiliated Ascension has put up for sale in the past year. The proposed sale comes as Ascension officials negotiate deals that would add 15 hospitals in four states to the 61-hospital system, and as the system launches an aggressive expansion of its capital spending—to $1.2 billion per year through 2011 from an average of $600 million annually.

In the eight years since two Catholic systems merged to create the St. Louis-based hospital giant, Ascension’s financial strength and market muscle have steadily grown.

Along the way, Ascension’s executives have wielded its multibillion-dollar assets to bolster its financial reserves with alternative investments; influence medical device and technology development; and aggressively negotiate deals with suppliers and insurers. Favorable contracts shaved $300 million off Ascension’s expenses in recent years and bolstered cash flow as favorable reimbursement helped offset slow growth from patient visits in 2006, credit analysts noted in February. Ascension’s success rests, in part, on officials’ savvy in striking deals to grab market share or pruning unprofitable hospitals that drain its overall financial strength.

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Since its inaugural year, Ascension’s operating margin has increased fivefold, while its unrestricted investments have doubled, to $5.6 billion in 2006. Operating revenue doubled to $11.4 billion in 2006, overshadowing operations of such household names as, Google and Southwest Airlines, based on the 2007 Fortune 500 rankings. Across the hospital industry, aggregate operating margins and revenue rose, though not nearly as fast—82% and 56%, respectively, between 1999 and 2005, according to the latest American Hospital Association data.

Ascension’s executives contend such gains, driven by an aggressive and entrepreneurial strategy, serve the system’s mission to care for vulnerable and poor patients who struggle to get adequate care. “We are a ministry,” said Anthony Tersigni, Ascension’s president and CEO. “We’re not a business. We do use business practices for one basic reason: We have bondholders who are counting on us to repay the bonds.”
For more, read these Web-exclusive stories:

  • Ascension Health’s C-suite filled with executives groomed in other industries.

  • Walking a different path, Trinity Health shedding many noncore businesses.

  • Indeed, the system has vowed publicly to wipe out fatal medical errors within its hospitals and expand access to all in each of its markets. The initiatives, a one-two punch at tackling two of healthcare’s most costly, intractable problems, get at the heart of Ascension’s mission to deliver effective, safe healthcare to everyone, its executives say.

    Margin vs. mission

    But Ascension’s financial savvy, strategic deals and market muscle also underscore a shift within tax-exempt healthcare toward more competitive and complex operations. That trend has become a flashpoint amid rising healthcare costs and inquiries into not-for-profit hospitals’ care for low-income and uninsured patients.

    Not-for-profit hospitals earn tax breaks for meeting federal criteria set for healthcare charities, including providing loosely defined community benefits. In recent years, inquiries into not-for-profits’ community aid policies uncovered aggressive, sometimes illegal, collection efforts, and found uninsured patients paying the industry’s highest prices for hospital care.

    Healthcare’s significant economic challenges leave Ascension vulnerable unless executives “find financially sustainable models,” Tersigni said. The growing number of uninsured and underinsured, spiraling healthcare costs and the industry’s hefty capital demands threaten to fray hospital budgets, he said. “That’s why we’re getting creative on the financial side.”

    To watchdogs, however, increasing market sophistication among not-for-profit health systems like Ascension is at the heart of a fierce debate driving lawsuits, inquiries and legislation targeting tax-exempt healthcare’s business practices: What’s the difference between tax-exempt hospitals and their for-profit competitors?

    “That’s the $1 million question,” said John Colombo, a University of Illinois law professor and critic of tax-exemption for hospitals. “The question is: Why are they tax-exempt?” he continued. “The answer is: No one really knows.”

    Colombo, who testified before Congress during a May 2004 hearing on tax exemption, said he isn’t convinced. Research is “decidedly mixed” on whether not-for-profits differ from investor-owned hospitals on prices, market power or charity care, Colombo argued in the June 2006 issue of the Journal of Health Politics, Policy and Law. “The modern, savvy, nonprofit, multicorporate enterprise, the Ascensions of the world … they are not much different from a for-profit,” he said. “The mental image of Mother Teresa running our nonprofit hospitals is just not true anymore.”

    By most measures, St. Louis-based Ascension is a large corporation.

    Within healthcare, Ascension’s size—by revenue—ranks behind only two health systems: Nashville-based HCA and the federal Veterans Affairs Department. Were it included, Ascension would rank 13th on Forbes magazine’s annual list of largest private companies; among Fortune 500 companies, the Roman Catholic health system’s revenue would fall in the top half, at No. 220.

    Already a giant, Ascension is poised to close a string of deals that credit analysts say will leave the Catholic hospital operator stronger, despite the likelihood Ascension will be forced to quickly absorb at least a dozen hospitals and enter Massachusetts’ highly competitive market.

    Rapid growth can leave hospital buyers bloated and overextended, but Ascension’s size and its past success taking on hospitals make it a good bet that management can handle the hefty crop of acquisitions, said John Wells, an analyst who follows Ascension for Fitch Ratings. “In our initial estimation, these transactions won’t be dilutive and, in large part, could be—would be—positive,” Wells said.

    Since November 2006, Ascension officials have unveiled deals that will add 12 acute-care hospitals in Kansas, Massachusetts and Wisconsin to its portfolio. The system is also in talks to snap up three-hospital Eastern Health System in Birmingham, Ala., by mid-2007. If successful, the deals will further diversify Ascension’s geographic reach and strengthen its hold in Milwaukee and Birmingham, where deals will give its hospitals the No. 2 and No. 1 market share, respectively.

    In late November, Ascension publicized plans to co-own four-hospital Via Christi Health System through a merger of assets among seven religious congregations, including three orders that sponsor Ascension and Via Christi. Via Christi, which reported 2006 operating income of $39.8 million on operating revenue of $1.19 billion, also owns an insurer, two specialty hospitals and a dozen long-term-care and assisted-living facilities.

    Two months later, the Catholic system announced a letter of intent to acquire six-hospital Caritas Christi Health Care from the Archdiocese of Boston. The deal, if successful, would mark Ascension’s entry into Massachusetts with a six-hospital operation that reported operating income of $27.7 million on revenue of $1.22 billion in the fiscal year ended Sept. 30, 2006, the most recent figures publicly available. And in early April, Ascension said its three-hospital Milwaukee-based system, Columbia St. Mary’s, had entered negotiations to merge finances, governance and operations with larger rival Froedtert & Community Health, which reported fiscal 2006 net income of $56.5 million off revenue of $813.5 million, according to unaudited financial statements. Columbia St. Mary’s reported fiscal 2006 net income of $45 million off revenue of $607.6 million, according to a Columbia spokeswoman (April 9, p. 16).

    The deal, still in talks, would significantly strengthen Columbia St. Mary’s position in a competitive market that Ascension has targeted for growth, according to credit analysts.

    Meanwhile, officials announced in mid-April a letter of intent to sell Riverview in Detroit after selling two hospitals in 2006.

    News of Riverview Hospital’s sale met stiff opposition from St. John’s competitors. One filed a lawsuit to halt the sale and a second contends converting the Detroit hospital to a cancer center threatens to overextend the city’s remaining hospitals, particularly its emergency rooms. In a lawsuit filed earlier this month, seven-hospital Detroit Medical Center argued Karmanos’ bid for St. John’s hospital violates the cancer center’s 2005 agreement to expand within DMC, said Benjamin Carter, executive vice president and chief operating officer of DMC.

    Nancy Schlichting, president and CEO of Henry Ford Health System, Detroit, said the deal raises troubling questions about access to emergency services. The four-hospital system’s 722-bed Henry Ford Hospital in Detroit regularly operates at capacity. Its busy emergency room will not be able to meet demand for patients displaced should Riverview Hospital close, she said. Schlichting said the city’s health systems must balance their commitment to Detroit’s vulnerable residents with financial pressures by leveraging their diverse assets and size. “That’s why systems are important,” she said.

    Ascension’s Joseph argued Riverview Hospital’s closure won’t curb access in Detroit, though care may be less convenient, and will check the financial drain Riverview’s losses put on

    St. John’s preventive and primary care. In the fiscal year ended June 30, 2006, Riverview lost

    $9 million off revenue of $140 million. The hospital is projected to lose $22 million off $137 million in 2007, according to a St. John spokeswoman. The system’s finances have struggled as Riverview has foundered. St. John reported operating income of $50 million off revenue of $1.87 billion last year. Operating income is expected to drop to $20 million off operating revenue of $1.92 billion, according to the system.

    Joseph rejected concerns that one less emergency room in east Detroit will strain the remaining capacity. “I don’t see the issue in that,” he said. St. John will keep Riverview’s ER open for a year, he said, and build an urgent-care center near the closed campus to meet neighborhood needs. Renovations totaling $150 million at 589-bed St. John Hospital and Medical Center, seven miles east of Riverview, include doubling the tertiary-care center’s emergency department.

    In November, Ascension sold St. Joseph Hospital, Augusta, Ga., to for-profit Triad Hospitals, Plano, Texas, for $30 million. The 129-bed hospital faced possible closure as far back as December 2002 when St. Joseph “faced serious financial issues, increasing operational difficulties and problems unique to its market, which has several competing hospitals,” Ascension wrote Georgia’s attorney general.

    St. Joseph, Ascension’s only acute-care hospital in Georgia, barely broke even in the fiscal year ended June 30, 2005, according to the most recent data publicly available. The modest triumph—gains of $863,000 off revenue of $80.4 million—followed years of red ink. St. Joseph lost $1.4 million off $76.5 million in 2004; another $1.4 million off $72.5 million in 2003; and $2 million off $68.3 million in 2002.

    In June 2006, Ascension sold 51-bed DeKalb Community Hospital, Smithville, Tenn., to Cannon County Hospital, Nashville, four years after acquiring Nashville-based Baptist Hospital System in 2002, which owned DeKalb and two other hospitals, in addition to a joint stake with Ascension’s St. Thomas Health Services in 199-bed Middle Tennessee Medical Center, Murfreesboro.

    Ascension’s mission drives its operations and financing strategies, not vice versa, its executives said.

    Even so, Ascension’s efforts to tackle preventable deaths and access for the uninsured have a business case. The system has pledged to eliminate avoidable injuries and deaths by July 2008 and guarantee access to everyone in all of its markets by 2020.

    “The world right now is divided into two groups of people,” argued David Pryor, Ascension’s senior vice president for clinical excellence. Some healthcare executives believe in a business case for capital-intensive quality improvements, others don’t. “I work in an organization that believes it’s there,” he said, though an unfavorable bottom-line analysis won’t prevent Ascension from adopting necessary safety standards.

    In December 2003, Ascension launched a five-year effort to prevent an estimated 900 deaths annually that its clinicians believed were avoidable by tackling key complications and errors. As of December 2006, efforts to reduce birth trauma injuries, patient falls, hospital-acquired infections, pressure ulcers, surgical complications and adverse drug events as well as meet established safety goals have prevented 2,000 deaths in total, a system spokeswoman said.

    But not without cost. To tackle severe pressure ulcers, Ascension began a systemwide push to replace bed frames and surfaces, including those in ERs, at a cost of $50 million. An analysis linked severe pressure ulcers with patients who remained in ERs when capacity constraints prevented doctors from transferring them elsewhere in the hospital. Pryor did not provide figures but said Ascension executives built a business case for the bed overhaul by factoring in costs of extended hospital stays and nursing injury associated with pressure ulcers.

    Meanwhile, improved access to care for the uninsured will curb costs by cutting down unnecessary ER visits, hospital admissions or duplicate laboratory and diagnostic tests by allowing patients and physicians to treat disease early and track care, Ascension’s executives said. Pilot programs under way in 21 cities, including New Orleans, Flint, Mich., and Jacksonville, Fla., measure progress by tracking admissions and enrollment in public insurance plans or privately funded aid programs.

    Public and private backing, particularly from private physicians, is central to the access initiative’s success, said Susan Nestor Levy, Ascension’s senior vice president of advocacy and external relations. The system has made progress in drumming up public support and getting doctors onboard. In Austin, Texas, Ascension backed a successful 2004 initiative to create a hospital tax district to raise roughly $5 million annually to improve access. Some specialty and primary-care doctors have signed on to accept a limited number of uninsured as patients. Combined, the 21 pilots have scored $47 million from HHS to target access since 2000. Ascension contributed another $7 million.

    Ascension’s governing board voted last December to tie executives’ bonus pay to a 2009 deadline for every hospital to draft a five-step plan for guaranteeing access. Among the five steps: Executives must find adequate and sustainable financing for access initiatives. Currently, hospital and system executives get paid a bonus for yearly increases in community benefits. Ascension declined to say what percentage of executives’ pay is tied to community benefit performance or how that performance is measured.

    Venture capital

    Ascension emerged in 1999, after the Daughters of Charity National Health System and Sisters of St. Joseph of Nazareth system merged. In short order, executives overhauled its debt structure and operations to adopt strategies more common among public companies, and acquired a nine-hospital Catholic system, Carondelet Health System, with operations in eight states.

    In 2001, under former CEO Douglas French, Ascension launched its venture capital subsidiary, Ascension Health Ventures. In so doing, Ascension joined a small group of not-for-profit systems that finance fledgling for-profit healthcare companies as an alternative investment strategy. During its first five years, Ascension Health Ventures backed 19 companies for a return of more than $29 million. Its current portfolio includes three healthcare-focused venture funds and 11 medical device- or healthcare-related companies.

    Ascension touts the return on its $125 million venture capital fund as twofold. Only healthcare products with potential to improve Ascension’s care, operations or finances receive capital; its investment criteria note that Ascension’s use of its venture-capital backed products or devices could also influence “acceptance by the broader market.” And should its portfolio flourish, Ascension profits like any investor.

    Few health systems can manage such higher-risk investments, which require specific expertise, said Chris Grant, vice president of Kaiser Permanente’s national venture development, who oversees Kaiser’s mergers, acquisitions, private equity investments and corporate development. Kaiser, Oakland, Calif., and Partners HealthCare System, Boston, operate venture capital arms.

    Kaiser first financed startup companies in 1999 with a strategy similar to Ascension’s: Get behind companies likely to generate a competitive financial return—18% to 22%—and an innovative healthcare product.

    “I like to say it needs to create a double bottom line,” Grant said. “We’re very serious about emerging technologies that improve quality, services and affordability.” Kaiser’s portfolio of 25 companies includes a nurse schedule-technology company, BidShift, San Diego, and CHF Solutions and Emageon, a couple of companies also financed or previously backed by Ascension. “It’s a great way of introducing innovation more rapidly into our facilities,” Grant said. Reviewing applications from startups gives Ascension an early glimpse into hundreds of new devices and services each year, said Anthony Speranzo, senior vice president and chief financial officer of Ascension.

    Kaiser and Ascension officials consider vendor contracts with companies they finance as a success. Kaiser contracts with Nursefinders, an Arlington, Texas-based staffing agency in which the health system is a minority equity partner. And as part-owner, venture capitalists gain a voice in product development, officials said.

    As an investor, Ascension Health Ventures uses its knowledge of hospital operations to offer comment but does not try to manage operations, said John Erb, CEO of CHF Solutions, a privately held company that won regulatory clearance in 2002 for its device to treat fluid retention in heart failure patients.

    The company’s financial backing also serves as an endorsement for the future investors and potential customers, but does not guarantee contracts with Ascension’s hospitals, executives said. “It’s not an automatic foot in the door,” Erb said.

    More changes are ahead. In June 2005, Ascension hired former McKinsey & Co. and Thomson Medstat consultant Hyung Kim to fill a newly created role of vice president of research and development. By early 2008, Ascension will wrap up an overhaul of its total investment portfolio—worth more than $5 billion—to create what may be not-for-profit healthcare’s largest alternative investment pool, sinking $1.6 billion into hedge funds, real estate, private equity and commodities.

    But as Ascension’s transactions grow more complex, so do ethical questions surrounding its operations. One former Ascension executive has profited from the health system’s strong ties to a company it financed with charitable assets. Former Ascension CEO French, who resigned from Ascension in May 2004 for personal reasons, landed a contract a year later with Emageon, a medical imaging software company that received financing from Ascension Health Ventures in June 2003 and went public in February 2005.

    French’s $5,000-per-month consulting contract with Emageon began a year after he left Ascension and continued until October 2006. Emageon expanded its board to add French on Oct. 19. As a director, French will receive $20,000 annually and another $1,000 per meeting. He received 2,000 shares and is eligible for another 7,500 shares annually. Ascension is Emageon’s largest client; the system’s orders accounted for 36% of Emageon’s 2005 revenue. Chuck Jett, Emageon’s chairman, president and CEO, did not respond to a request for comment on French’s appointment. French did not respond either. Ascension said its venture capital arm adheres to Ascension’s ethics policies, which prohibit “conflicts of interest and unacceptable outside business activities.”

    Venture capital isn’t Ascension’s only leverage with health information technology developers or medical devicemakers. The system’s geographic diversity and its voracious appetite for supplies and services give Ascension an edge in influencing product development or lowering prices. In 2006, Ascension spent $3.04 billion on supplies, services and professional fees.

    Pull with vendors matters when health IT investments can total 2% to 6% of net revenue, said health economist Paul Keckley, executive director of Vanderbilt University’s Center for Evidence-based Medicine. Ascension’s influence stands to grow amid healthcare’s explosion of safety- and quality-related products and software, Keckley said. “There are so many options out there,” he said. Savvy health system negotiators bargain for more than competitive rates, though deals that award hospitals royalty payments in return for testing products remains rare.

    Deals with Cerner Corp., Medline Industries and Hill-Rom underscore Ascension’s willingness to capitalize on its size and geographic diversity to secure contracts that go well beyond buyer-and-seller relationships to include product development and testing. “We want to be the incubator for R&D,” Tersigni said.

    Sherry Browne, Ascension’s senior vice president and chief information officer, acknowledges that with size comes advantage. The system’s diversity gives vendors access to urban, rural and critical-access hospitals and makes it a valuable laboratory for testing and piloting clinical software, she said.

    Cerner, which inked a $100 million contract with Ascension in 2004, vetted its virtual intensive-care unit in Ascension’s 392-bed Borgess Medical Center in Kalamazoo, Mich. Medline Industries, a medical and surgical product supplier, began testing radio-frequency identification tags to track surgical equipment in 2004, Ascension’s Kim said. Manufacturers hope such a tag—which must be small and durable enough to survive sterilizing—will help doctors and nurses track equipment and prevent them from leaving instruments inside patients after surgery.

    Ascension’s strategic deals—which deliver significant sales to vendors—give Ascension influence over product development or potential control over jointly developed intellectual property. Hill-Rom recently unveiled a five-year deal with Ascension that includes joint clinical research initiatives and the Batesville, Ind., company’s largest-ever customer order: $60 million for bed frames and so-called therapeutic surfaces. The partners will jointly oversee and finance research projects and both stand to gain from successful results, said Andy Rieth, a spokesman for Hill-Rom’s parent company, Hillenbrand Industries, though he declined to give specifics. Hill-Rom’s Ascension deal won special mention from Peter Soderberg, Hillenbrand’s president and CEO, during the company’s quarterly conference call with analysts in August.

    With roughly 25% of Ascension’s operating expenses dedicated to supplier and service costs, Ascension has made competitive contracting a priority. So much so that Ascension pulled out of Consorta—a group purchaser for Catholic and not-for-profit healthcare—and inked a three-year deal with rival Broadlane. Ascension’s Daughters of Charity co-founded Consorta. Until October, Ascension not only bought supplies though Consorta, but it also owned a stake in the GPO and received an annual dividend based on performance.

    That wasn’t enough. Mike Langlois, Ascension’s senior vice president and chief supply-chain officer, cited the “need to operate as efficiently as possible” in a statement announcing the switch to Dallas-based Broadlane. Langlois was not available for comment, an Ascension spokeswoman said. Executives with Consorta declined an interview request.

    Such aggressive management of supplies has yielded $300 million in savings between 2002 and 2006, bond ratings agency Moody’s Investors Service said in a February note.

    Buying power

    Signing Ascension pushed Broadlane’s buying power to $10 billion. For Consorta, Ascension’s departure, though not a surprise, meant the loss of its second-largest buyer behind Catholic Health Initiatives, said Michael Rowan, a Consorta board member and chief operating officer and executive vice president for the 56-hospital Denver-based CHI.

    Ascension had previously limited its purchasing through Consorta with an exclusive and selective contract. With the contract set to expire, Ascension opted to go, Rowan said. The system gave the GPO early warning of its decision to pull out, he added.

    Three months after Ascension’s pullout, Consorta unveiled plans to become the sixth equity owner in HealthTrust, a GPO spinoff of Nashville-based HCA, along with five investor-owned hospital chains. At the time, John Strong, Consorta’s president and CEO told Modern Healthcare the pairing with larger HealthTrust had nothing to do with Ascension’s pullout (Jan. 8, p. 6).

    The system is also pushing to maximize its clout with health plans. In Michigan—where underperforming operations still managed to contribute more than one-fourth of Ascension’s 2006 operating revenue—the system won a favorable statewide contract with Blue Cross and Blue Shield of Michigan, the state’s largest insurer. Ascension may try to maneuver insurers elsewhere into statewide contracts, Moody’s noted. Price increases contributed to the system’s 2006 cash flow gains and helped offset volume growth, the ratings agency said.

    Ascension’s Columbia St. Mary’s stands to gain significant market strength in its proposed merger with Froedtert. The deal, which needs approval from the Federal Trade Commission, would position the newly paired systems as Milwaukee’s second-largest player. Larry Rambo, CEO of Humana’s markets in Chicago, Michigan and Wisconsin, acknowledged that such consolidation could give a combined Columbia-Froedtert more leverage in talks. But he’s not so certain that the duo will drive up Milwaukee’s healthcare costs. Consolidation can also lead to economies of scale and less costly overlap in expensive technology and services, he said. Milwaukee’s fate, if the merger succeeds, won’t be clear for years, Rambo said.

    Regulators and experts see greater transparency as one remedy to fears that market-savvy not-for-profits put margin before mission. “We should have high expectations for not-for-profits, but that’s not the same as saying they can’t be very smart businesspeople to achieve their mission, or that we want them to be unsophisticated,” said Kathleen Boozang, a health law professor and associate dean for academic advancement at Seton Hall University. The key, of course, is that not-for-profit health systems must prove they earn tax breaks by dedicating their operations—and any profits—toward improving access to quality medical care, particularly for vulnerable and low-income patients, she said.

    Critics say that proof is hard to come by. Congress and state attorneys general have launched inquires into tax-exempt hospitals’ collection, pricing and discount policies for low-income patients. The Internal Revenue Service is examining not-for-profit’s disclosure of pay and perks for executives. In 2005, IRS Commissioner Mark Everson went before Congress and testified to the increasing difficulty of policing the sector. “We regularly find ourselves engulfed in paper as we attempt to discern whether those in control of a particular non-profit healthcare provider are acting more as investors for their own account or as stewards of charitable assets,” he said.

    Ascension reported $703.9 million in community benefit spending for 2006, or 6.1% of its $11.4 billion operating revenue. The figure includes charity discounts and programs for low-income patients; public health and education expenses; and costs not covered by Medicaid. Ascension said about 43% of its overall community benefit spending came from unpaid costs of public programs, excluding Medicare, the federally subsidized insurance for the elderly and disabled. Free and discounted care accounted for another 29% of such costs. Community benefit programs and other aid to the low-income accounted for the remaining costs, or about 29%.

    Despite increased regulatory interest, Boozang argues, no effort to date has hit on a clear standard by which to measure charities’ performance.

    Federal rules that govern tax-exempt healthcare operations have not been updated since 1969, though the market has continued to evolve, said Lois Lerner, IRS director of exempt organizations. Not-for-profit hospitals and the healthcare market don’t look like they did when standards were last revised, she said. “Our world has changed.” Results from a survey of community benefits and executive compensation at more than 500 tax-exempt hospitals will help regulators understand how hospitals’ meet existing criteria for tax breaks, she said.

    Ascension complies with regulations and will continue to do so as they change, Tersigni said.

    Tersigni testified before Congress on tax-exempt healthcare’s business practices. One week after his appointment as Ascension’s CEO, Tersigni went before the House Energy and Commerce Subcommittee on Oversight and Investigations to tout the system’s “ambitious goal” to guarantee access for uninsured patients in Ascension’s acute-care hospital markets. But he also acknowledged the system’s prior oversight of charity-care, collection and billing policies had been inconsistent, occasionally unclear and had room for improvement.

    Ascension’s CEO rose quickly within the system’s ranks after he proved to be competitive and skillful in Detroit’s turbulent healthcare market. Adept networking, business savvy and his Catholic faith became hallmarks of Tersigni’s early healthcare career in Michigan. Peers describe him as approachable but professional and intense. “He’s always in a suit,” noted John Lore, former president and CEO of the Sisters of St. Joseph Health System. “I used to accuse him of cutting his lawn in a suit.”

    Tersigni entered the industry nearly 30 years ago at the urging of a circuit court judge and friend, Tersigni said, leaving a job as finance director with the Republican Party of South East Michigan to join St. Joseph Health System.

    As a healthcare executive, he grew increasingly active in his hometown’s economic and Catholic circles. Tersigni sits on the governing boards of the Detroit Economic Club and the Catholic-sponsored University of Detroit Mercy. His connections extend from Motor City’s archbishop to former Michigan Department of Public Health Director Vernice Davis-Anthony, whom he successfully recruited to St. John Health System in Detroit after becoming its CEO in 1995.

    Former and current Detroit executives said Tersigni worked to improve the city’s public health, but it was his business acumen that transformed Detroit’s healthcare landscape. Notably, he maneuvered St. John Health System, through investment and acquisitions, from a fringe player in Detroit’s market to a well-recognized, powerful system, they said. That ambition and success helped fuel consolidation.

    “I think he was doing what had to be done,” said Bernita Crawford, who ran Detroit’s now-closed Mercy Hospital between 1991 and 1998. The city’s population fell as its economy faltered; metropolitan hospitals struggled with high poverty rates and a growing number of uninsured, she said. The “city was growing smaller faster than people could cope with sometimes,” she noted.

    St. John mushroomed under Tersigni’s tenure as CEO, acquiring and consolidating hospitals despite early setbacks that nixed two deals. In 1995, a joint venture between St. John and Bon Secours Health System ended after talks failed and the FTC blocked co-ownership of two Port Huron, Mich., hospitals by St. John and Farmington Hills, Mich.-based Mercy Health Services.

    Tersigni’s marching orders upon arriving at St. John were to build its market share and presence, said Lore, who headed the Sisters of St. Joseph Health System from 1993 until its merger with the Daughters of Charity to form Ascension in 1999. St. John was one of four health systems owned by the Sisters of St. Joseph. Lore retired from Ascension in 2000.

    Tersigni’s career advanced as St. John grew. The system emerged on an unofficial short list of Detroit’s most powerful healthcare players. “Before, (St. John) was never considered a (Detroit Medical Center) or a Ford,” Lore said, referring to four-hospital Henry Ford. “We started hearing terms like ‘Big Three,’ ” to describe the Detroit Medical Center, Henry Ford and St. John, he said.

    Ascension’s competitors should take note of Tersigni’s past victories, said Henry DeVries, an executive in Michigan for Bon Secours Health System, in Marriottsville, Md., for 20 years before starting Homecare Assistance of Michigan in 2004.

    “He was the first one to coin the phrase ‘The Big Three of healthcare,’ ” said DeVries, who is president and CEO of his Grosse Point Farms, Mich.-based agency. “That was Tony’s brainchild.” Tersigni bolstered his health system’s visibility as he grabbed market share. “That positioned St. John very well,” DeVries said. “I would say look at what he did in Detroit and you’ll get an idea of what he has, and is, going to do with the Ascension Health system.”

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