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Dignity's acquisition of U.S. HealthWorks helped bolster fiscal 2013 revenue


By Beth Kutscher
Posted: December 26, 2013 - 6:00 pm ET
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While Dignity Health stayed out of the fray for hospital deals in 2013, its move into occupational medicine and urgent care helped bolster the system's fiscal 2013 results and set the stage for it to keep growing in that area in 2014.

San Francisco-based Dignity acquired occupational medicine provider U.S HealthWorks in a $455 million deal that closed in August 2012. At the time, U.S. HealthWorks had 172 locations in 15 states—which Dignity has now grown to 208 locations in 20 states.

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On Dignity's year-end earnings (PDF) call, Mary Connick, vice president of finance and corporate controller, said U.S. HealthWorks contributed $322 million in revenue in fiscal 2013, which ended in June. In addition, the business added 3 million ambulatory visits—roughly tripling Dignity's total ambulatory volume over 2012—at a time when the system experienced a 3.7% decline in inpatient volume at its acute-care hospitals.

“The volume is profitable, geographically diversified and continues to grow,” Connick said. She added that outpatient volume is a key part of its strategy as payers try to hold down inpatient utilization and shift care from inpatient to outpatient settings.

Outpatient volume at its hospitals grew 3.9% in 2013, compared with 3.1% in 2012.

Michael Blaszyk, Dignity's executive vice president and chief financial officer, said the system will continue to look for other buys in occupational medicine and urgent care. U.S. HealthWorks, he added, has been self-funded, and the system has not had to put additional cash into the business. “The cash on cash returns have been significant,” Blaszyk said.

Expanding its geographic footprint was one of the primary reasons the organization cited when it shed the name Catholic Healthcare West and severed formal ties with the Roman Catholic Church in 2012.

The U.S. HealthCare deal expanded Dignity's reach, but the system has chosen not to pursue a number of acute-care opportunities it explored.

“We would certainly like to expand our acute-care ministry outside of California, Arizona and Nevada,” Blaszyk said. “We're looking at those opportunities, but we do not want to do anything deleterious to the balance sheet.”

Blaszyk said Dignity would also consider acquisitions that either increase scale or improve operational efficiencies for its hospitals. “We have worked very hard to form relationships with private equity—we're very active in assessing those opportunities,” he added.

Dignity has also focused on decreasing its costs, achieving more than $100 million in savings in fiscal 2013, Connick said.

Working with consulting firm McKinsey, the system has set a goal of achieving $200 million to 300 million in operational efficiencies in fiscal 2014, Blaszyk said. The savings will come from a number of areas including staffing for demand, negotiations with its unions, outsourcing and supply chain management, and revenue-cycle management initiatives.

Dignity Health reported $10.4 billion in revenue in fiscal 2013, a 5% increase on a same-facility basis and 9.6% higher than in fiscal 2012.

Follow Beth Kutscher on Twitter: @MHbkutscher


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