The U.S. Justice Department's clearance of a merger in today's evolving healthcare business climate could seem divine. But it's a testament of another kind that has the largest not-for-profit provider in healthcare-the Roman Catholic Church-searching for ways to keep pace with reform-induced changes.
As market pressures fuel unprecedented numbers of mergers and collaborations, Catholic hospitals are faced with harmonizing business deals within the scope of their Ethical and Religious Directives for Catholic Health Facilities.
And, for the first time later this year, the bishops who author the directives will address Catholic healthcare facilities' efforts to collaborate with facilities not sponsored by the church.
"Catholic hospitals need to realize it's not about control anymore," said Bain Farris, chief executive officer of St. Vincent Hospitals and Health Services, Indianapolis, which joined in March with Community Hospitals Indianapolis, a non-Catholic system, to form the largest hospital system in Indiana. The new system, Collaborative Health Services, includes five hospitals with $900 million in total assets.
Some in Catholic healthcare say their activity to further collaborate and consolidate in the managed-care environment is no different than what other hospitals are doing.
But Catholic hospitals may have more to gain. Or more to lose.
"This is one of the most critical periods for Catholic healthcare," said Sister Margaret Mary Modde, a canonical consultant at the Chicago law firm of McDermott, Will and Emery.
Branching out. With some 570 Catholic hospitals, the church accounts for 14% of the nation's acute-care beds and 10% of the acute-care hospitals, according to the Catholic Health Association.
Government-owned hospitals aside, Catholic hospitals are the largest not-for-profit player in healthcare with more than $32 billion in revenues, according to MODERN HEALTHCARE's 1994 Multi-unit Providers Survey (May 23, p. 36).
But many Catholic healthcare executives are concerned they could lose their standing unless they reach outside the denomination.
"The thought that we're just going to do relationships with Catholic hospitals is gone," Mr. Farris said. "If we just do business with Catholics, we're not going to be around."
Unfortunately, some Catholic hospitals are finding that deals can disintegrate for non-business reasons.
A recent merger between three hospitals in Portland, Maine, fell apart after six months of discussions.
A key issue of concern for Portland's Mercy Hospital, a 200-bed Catholic-sponsored facility, was being associated with a system that allowed abortions, said Howard Buckley, Mercy's president (March 28, p. 6). Mercy is a member of the Philadelphia-based Eastern Mercy Health System that's owned by Sisters of Mercy of the Americas.
The proposed merger involved 598-bed Maine Medical Center and Brighton Medical Center, a 122-bed osteopathic facility.
Thus, the challenge remains for Catholic healthcare executives and those dealing with Catholic facilities to work within the ethical and religious directives.
The directives pertain predominantly to medical issues, such as forbidding sterilizations, abortions and in vitro fertilizations. But they become business guidelines for bishops in each diocese.
"Abortion, that is, the directly intended termination of pregnancy before viability, is never permitted nor is the directly intended destruction of a viable fetus," according to the directives.
The directives were last approved in 1971, and briefly revised in 1975, by the National Conference of Catholic Bishops/U.S. Catholic Conference.
Guidance sought. The bishops currently are rewriting the directives, and Catholic healthcare executives are quietly hoping they will give them some guidance later this year on how to collaborate with non-Catholic facilities.
"The directives are offered to the bishops, and they use them to guide their own policy in the diocese," said the Rev. Augustine Dinoia, a priest and executive director of the secretariat for doctrine and pastoral practice for the National Conference of Catholic Bishops/U.S. Catholic Conference in Washington.
The new directives are expected to encourage bishops to be more involved in the healthcare institutions of their individual diocese.
"There's a reluctance on the part of the bishops to say too much on a national scale because the specific hospitals and healthcare institutions deal with specific situations in the various locales," Father Dinoia said. "The reason for the bishops' reluctance to be specific on national directives is that the hospitals and healthcare people tell us" about the variance from market to market, he said.
The bishops, who must sign off on all final decisions on Catholic healthcare mergers or collaborations, announced last month the formation of an "Ad Hoc Committee on Catholic Health Care Ministry." The panel will serve as a resource for bishops to address "increasingly challenging, difficult and complicated issues," said Baltimore Archbishop William H. Keeler. "Among these issues are the consolidation of Catholic hospitals or their networking with other hospitals that do not share the same ethical principles."
When the new directives are issued later this year, the bishops aren't likely to budge on the abortion issue. Father Dinoia said any final draft of the directives could be changed as late as the day it's voted on by some 300 U.S. Bishops. An October vote is expected.
"The bishops are not going to give on abortions," Sister Modde said.
In the case of a Catholic healthcare facility linking with a non-Catholic, Sister Modde said the formula for a successful deal must involve the bishop.
Dealing with the directives. Catholic-sponsored health systems have learned to work within the 20-year-old directives. Some successful Catholic/non-Catholic arrangements have had the local bishop's blessing from their inception.
St. Joseph's Hospital and Medical Center in Phoenix, Ariz., a division of Catholic Healthcare West, helped form the Arizona Healthcare Alliance. Executives at St. Joseph's, the only teaching hospital in the eight-hospital alliance, attribute part of their success to keeping Phoenix Bishop Thomas O'Brien apprised of the negotiations.
Along with 493-bed St. Joseph's, five other hospitals or systems with a total of more than 1,100 acute-care beds are in the alliance: Chandler (Ariz.) Regional Hospital; Lutheran Health System, which includes Mesa Lutheran and Valley Lutheran; Phoenix Memorial Hospital; Baptist Health System, which includes Arrowhead Community Hospital in Glendale and Phoenix Baptist Hospital and Medical Center; and John C. Lincoln Hospital and Health Center, Phoenix. Each system has a physician-hospital organization.
The alliance's bylaws were written in such a manner that the other hospitals would support St. Joseph's mission, but St. Joseph's would not be involved in sterilization or abortion services. If such a procedure were requested by a third-party payer, that payer would have to contract separately with a non-Catholic facility and couldn't contract with the alliance.
The alliance, formed in July 1992, has grown to cover 17,000 lives. By July 1, the alliance will add another 23,000, said Ken Diamond, vice president for managed care at St. Joseph's.
"The increase (in lives covered) has come through some acquisition of smaller PPOs and the (insurance) broker community," Mr. Diamond said. "A lot of the smaller employers use brokers, and the brokers are viewing the alliance favorably."
The alliance is projecting a loss of $185,000 for fiscal 1994, which ends June 30. Its operating budget, paid by system members, is about $780,000 a year. Alliance members attribute the initial loss to start-up costs and predict a positive bottom line in the last quarter of fiscal 1995, Mr. Diamond said.
Staying separate. In Springfield, Ohio, merger discussions involving Mercy Health System and non-Catholic 199-bed Community Hospital of Springfield resulted in a preliminarily agreement to build a separate facility for sterilizations such as tubal ligations and vasectomies. Community intends to merge with the Western, Ohio-based system, which includes 218-bed Mercy Medical Center in Springfield and 73-bed Mercy Memorial Hospital in Urbana.
Community's parent, Community Hospital Health Services Foundation, will set up a subsidiary structure in order to continue allowing sterilizations. Executives still have to iron out the costs of the new facility but said it will be located on foundation property. It will beowned by the foundation and separate from the merged entity that includes Catholic assets.
"The foundation actually owns the ground, so the (new) facility could be right on the campus; it just can't be part of it," said Stephen Westlake, regional vice president of planning and marketing for Mercy Health System, which is owned by the Cincinnati-based Mercy Health Systems.
Rather than compromise their missions, Catholic hospitals are looking for creative ventures that allow them to maintain their identities.
Addressing differences.In Indianapolis, a closely knit collaboration cleared a major antitrust hurdle earlier this year when investigators cleared the consolidation of St. Vincent Hospitals and Health Services, a Catholic system owned by the Daughters of Charity National Health System, and Community Hospitals Indianapolis. They formed Collaborative Health Services of Indianapolis (March 21, p. 8).
The two systems settled several ethical issues in order to proceed with the collaboration. For example, Community Hospitals' east-side facility no longer performs abortions. However, all Community Hospitals will do in vitro fertilizations.
The assets of the two systems stay separate so each will keep its own name and identity.
With two acute-care hospitals, a facility for the mentally disabled and a psychiatric hospital, St. Vincent holds 60% of the assets of the new umbrella corporation. Community, with three acute-care hospitals, has the remainder.
Although one system has more assets, the new corporation's board will have an equal number of trustees: eight from each partner (See chart, p. 33).
"We don't have to control 51% of everything we're involved in," Mr. Farris said. "Catholic hospitals should be concerned about the future of Catholic healthcare."
All the revenues from the hospitals will come into the new holding company. The surplus or loss will be divided based on current assets of each hospital system.
"We complement each other," Mr. Farris said. "Neither of us had to do this for financial reasons, but we thought it was the right thing to do."
The new venture creates the largest health system in Indiana with $900 million in total assets and 1,700 acute-care beds. It also will control more than one-third of Marion County's acute-care market. Of their combined operating budgets of $680 million, executives expect "substantial" savings in administrative and clinical areas.
In 1993, St. Vincent Indianapolis Hospital and Health Care Center had net income of $31.9 million on net revenues of $377 million, according to HCIA, a Baltimore-based healthcare research firm. Community Hospitals reported net income of $23.4 million on net revenues of $285.4 million in 1993, HCIA said.
Executives at both systems were particularly delighted that the Justice Department reviewed the collaboration in less time than expected.
Keeping the faith. Mr. Farris said the major breakdowns of collaborations and mergers between Catholic and non-Catholic hospitals has come from Catholics asking, "Am I going to give up my Catholic background and faith and tradition?"
The answer, Mr. Farris says, is "no."
Executives at both systems said they are giving up some control.
"I believe individuals hide their organizations behind some of these religious and antitrust constraints for the purpose of not doing something together," said William Corley, president of Community Hospitals. "The benefit to the community will be far greater, and at the same time religious hospitals need to focus more on influencing the larger organization than controlling a smaller organization."
The Indianapolis collaborative network is just shy of a merger, analysts said.
St. Vincent's owners, the Daughters of Charity, had to approve the collaborative network. The congregation has divided its hospitals into four regional organizations, where regional boards are working on collaborative arrangements.
On Feb. 22, the Justice Department asked for another 30 days to review the deal but didn't take the full time. Both systems filed antitrust papers with the department on Dec. 23, 1993.
"It used to be a whole merger of the balance sheet and now this (Indianapolis collaboration) is more of a merger of the bottom line," said Diane Moeller, chief executive officer of Omaha-based Catholic Health Corp., which includes 40 acute-care hospitals and 60 long-term-care facilities. Those facilities are either affiliated with CHC by their religious sponsors or sponsored by CHC directly.
Caution urged. Ms. Moeller said hospitals should be careful before entering collaborative ventures and must consider how their facilities will operate after a deal is made.
"These kind of arrangements are new and untried," Ms. Moeller said. "They are not trials; they are marriages."
Ms. Moeller has been the top executive at CHC since 1987. Before that, she was vice president of member services at St. Louis-based Catholic Health Association for more than four years.
"You are not going to pull them apart once they are together. I think people are looking real hard before they make that move."
Many analysts in Catholic healthcare believe it's too early to tell what the future will hold for Catholic and non-Catholic partnerships.
"There's a lot of anxiety on all parts because no one can tell you their future or where they're headed," said William Cox, vice president of the division of government services at the CHA's Washington office.
"There is enormous capacity in Catholic healthcare, and we believe that our future lies in integration," Mr. Cox said. "We do know that the end of the '90s will not look like the beginning."