In spite of the defection of a large Roman Catholic system last week to Columbia/HCA Healthcare Corp., Catholic healthcare leaders remain skeptical about the long-term advantages of dealing with investor-owned companies.
Columbia announced late last week that it has signed a letter of intent to form a partnership with Cleveland-based Sisters of Charity of St. Augustine Health System. The Catholic system, which reported $438 million in 1994 assets, will retain 50% ownership.
The deal represents Columbia's first major partnership with a Catholic multihospital system.
"The letter of intent between the two organizations represents a sort of ideological coup for Columbia/HCA," said John Curley, president and chief executive officer of the Catholic Health Association. "(The) CHA believes, however, that investor-owned systems are incompatible with medicine's patient-first ethic and the need for stable, community-based systems of care. The investor-owned model is, over the long run, incompatible with the Catholic mission in healthcare."
In return for its 50% interest, Columbia will retire $88 million in the Catholic system's debt through cash contributed in the sale. CSA will remain as a general partner and create foundations in communities it serves. Columbia executives anticipate a total cash commitment of between $400 million and $500 million, excluding the sale price, which wasn't disclosed. The deal is expected to be completed in two to three months.
Until then, CSA faces scrutiny from fellow not-for-profit providers and the Catholic Church.
"There's a lot of uneasiness about this because we are pioneers, but there is no compromise in our mission," Sister Judith Ann Karam told MODERN HEALTHCARE during an interview in Cleveland. Karam is major superior of the Sisters of Charity of St. Augustine, the four-hospital system's sponsor.
"There are a lot of assumptions about Columbia that aren't correct," she said. "We don't have dissimilar goals, and they do provide care to the poor."
While the Sisters of Charity of St. Augustine and Columbia say the new system will abide by the Ethical and Religious Directives for Catholic Health Care Services, the deal hasn't gained full church approval. The four hospitals are located in three dioceses in northeast Ohio and South Carolina. CSA has discussed the deal with the three bishops, who must approve business ventures of church properties in their dioceses, but hasn't received their go-ahead.
"We believe this partnership will be a model for other Catholic hospitals to follow to ensure long-term preservation of Catholic health in other markets," said Peter Reibold, president and CEO of CSA.
Columbia plans to use CSA as an entry point to deal with other Catholic hospitals (See chart, p. 10). As part of the agreement, Columbia plans to give CSA a seat on its board of directors.
The Catholic system also will maintain its current management structure, local boards and autonomy, Karam added.
However, the Catholic hospitals will lose their tax-exempt status, requiring them to pay real estate, personal property, sales and other taxes for the first time. No figures were available on the system's potential tax liability.
CSA reported net income of $18.1 million on net revenues of $376 million in 1994, according to data submitted for MODERN HEALTHCARE's 1995 Multi-unit Providers Survey. The system has more than 1,400 beds and 5,500 employees.
The hospitals involved in the deal Cleveland; 183-bed St. John West Shore Hospital in Westlake, Ohio; 426-bed Timken Mercy Medical Center in Canton, Ohio; and 235-bed Providence Hospital in Columbia, S.C.
The South Carolina property is a coup for Columbia, which is already completing a deal with the Medical University of South Carolina, a four-hospital system based in Charleston.
Columbia is patterning both deals after a 50-50 venture with Southwest Texas Methodist Hospital in San Antonio (Feb. 6, p. 41). In that venture, the Nashville, Tenn.-based hospital chain shares risk and governance equally with a tax-exempt organization.
It appears Columbia is now ready to make even more such deals.
"This is not a cookie-cutter approach," said Thomas Frist, M.D., vice chairman of Columbia. "Some will be 50-50, and some will be 80-20, and some will be different from those. This new one just happens to have a heavy Catholic component."
All the hospitals are members of the CHA, which has urged church-sponsored hospitals to rebuff offers from for-profit systems.
In the last year, Catholic healthcare leaders have said they fear losing their tax-exempt status and being taken over by mammoth investor-owned hospital chains (Jan. 23, p. 20).
"(Columbia's) announcement may have short-term benefits," Curley said. "While eloquent in its promise to preserve Catholic mission, Columbia/HCA must be accountable primarily to its shareholders for an increasing return on equity. (The) CHA has no quarrel with this motivation for commodities, but healthcare is different."
The hospitals now run the risk of losing their membership in the CHA. The association's members will vote next month on whether to deny membership to organizations with connections to for-profits. The CHA board last year recommended that only not-for-profit organizations be entitled to membership, reversing a bylaw change made two years ago (Oct. 3, 1994, p. 28).
"I regret that," CSA's Karam said of the possibility that the hospitals would lose their CHA membership.
CSA said Columbia was the most attractive partner because of its purchasing power and ability to tap national managed-care contracts. Columbia boasts $17 billion in assets, more than $17 billion in annual revenues and 318 hospitals.
Other chains, including Tenet Healthcare Corp. and Bon Secours National Health System, talked to the Catholic system about a possible deal (See related story, p. 3).
In what could become commonplace, Tenet bid against Columbia on two other deals in New Orleans and El Paso, Texas, last week (See related story, p. 3). Tenet won those bids and didn't appear discouraged about Columbia's win in Cleveland.
"For Columbia/HCA, the prize is both a major Catholic hospital partner and access to a major urban market dominated by Fortune 500 corporations," said Daniel Cain, president of New York-based Cain Brothers & Co., a financial consulting firm that assisted CSA in the deal. "CSA conducted an extensive review of all ownership options and alternatives and concluded that integrated health delivery will mandate physician partnering and risk-sharing investment."
Sisters of (CHART)
Charity of St. Augustine Health System
1994 assets$438 million
1994 net revenues$376 million
1994 net income$18.1 million
Sources: Hospital reports and Modern Healthcare's 1995 Multi-unit
Columbia/HCA Healthcare Corp.
1994 revenues$14.5 billion
1994 profits$814 million
1994 assets$16.3 billion
Long-term debt$5.5 billion
Stockholders' equity$6.1 billion
100 freestanding surgery centers
in 36 states, England and
Number of employees213,100
Note: Financial figures for 1994 are consolidated with Healthtrust.
Source: Columbia/HCA Healthcare Corp.
Other Columbia acquisitions completed or pending in 1995
Angelo Community Hospital, San Angelo, Texas
Bishop Clarkson Memorial Hospital, Omaha, Neb.
Cheatham Medical Center, Ashland City, Tenn.
Chicago Osteopathic Hospital and Medical Centers
Dallas Family Hospital
Georgia Baptist Medical Center, Atlanta *
Good Samaritan Hospital, Lexington, Ky.
Goodlark Regional Medical Center, Dickson, Tenn.
Hamilton County Memorial Hospital, Jasper, Fla.
HealthOne, Denver (six hospitals) *
Helen Ellis Memorial Hospital, Tarpon Springs, Fla.
JFK Medical Center, Atlantis, Fla.
John Randolph Medical Center, Hopewell, Va.
La Grange (Ill.) Memorial Health System
Medical University of South Carolina, Charleston (four facilities) *
Memorial Medical Center of Jacksonville (Fla.)
and Memorial Regional Rehabilitation Center, Jacksonville *
Murray Medical Center, Chatsworth, Ga.
Olympia Fields (Ill.) Hospital and Medical Center
Retreat Hospital, Richmond, Va.
Rose Medical Center, Denver
Saint Francis Hospital, Charleston, W.Va.
Savoy Medical Center, Mamou, La.
Southwest Texas Methodist Hospital, San Antonio *
Tulane University Hospital and Clinics, New Orleans *
Westlake Medical Center, Westlake Village, Calif.
* Joint venture
Source: Columbia/HCA Healthcare Corp.