Daughters of Charity National Health System may have taken a $40 million loss this year on the sale of 441-bed DePaul Health Center in St. Louis, but the nation's largest not-for-profit healthcare system still earned $182 million in fiscal 1995, which ended June 30.
Traditionally, St. Louis-based Daughters of Charity has been mum about its profitability. However, five years' worth of profit data were revealed in a recent Standard & Poor's Corp. analysis of a planned $218.9 million bond offering, which is expected to be issued sometime this month.
From 1991 to 1995, the 47-hospital system's net margin "barely wavered from 6%" and allowed it to "accumulate over $1 billion of cash and board-designated funds," said Standard & Poor's, a New York-based credit-rating agency. In 1995, the system reported revenues of $3.2 billion.
Standard & Poor's also said more than one-third of Daughters of Charity's fiscal 1995 income came from its hospitals in Indianapolis; Nashville, Tenn.; and Pensacola, Fla.
DePaul Health Center, however, was losing money and market share to larger competitors. That was one reason the facility was sold in April to SSM Health Care, a 19-hospital St. Louis-based Roman Catholic system, said Dennis Eike, senior vice president and chief financial officer of Daughters of Charity's west central region. DePaul is now part of St. Louis Health Care Network, which SSM formed last year. The network includes seven SSM-owned hospitals and affiliate St. Louis University Health Sciences Center.
From 1992 to 1994, DePaul lost a total of $7.2 million on operations. Average annual total revenues during that period were about $119 million, according to HCIA, a Baltimore-based healthcare information company.
"It was a difficult decision to sell DePaul because it had been (sponsored by Daughters of Charity) for 160 years," said Eike, who is slated to become chief executive officer of Daughters of Charity's west central region in January.
In addition to the financial losses, several other factors led to the decision to sell DePaul, Eike said. Managed-care penetration had grown to 70% of the St. Louis area's insured population in 1995 from about 50% in 1991. And, in addition to competition from SSM, BJC Health System in the past several years had emerged as a rival system. BJC has 10 hospitals in the St. Louis area.
Eike and William Schoenhard, SSM's chief operating officer, declined to provide specific details of the DePaul sale. However, Eike said SSM financed the Religious hospitals purchase "over a period of years."
"Instead of paying cash for the acquisition, we entered into a loan with (Daughters of Charity) for the purchase price," Schoenhard said.
HCIA said DePaul had total assets of $144.5 million in 1994 and total liabilities of $48.6 million.
In January, SSM expects to complete a management and clinical integration review of its St. Louis hospitals to determine how to best deliver clinical services, spokeswoman Dixie Platt said. Some clinical and management consolidation is expected, saving the network about $42 million over several years, she said.
Meanwhile, Daughters of Charity expects to recoup $12 million to $15 million of its $40 million loss on DePaul from the federal government. Under Medicare rules, hospitals that are sold at a loss are allowed to seek reimbursement for depreciated capital costs.
Daughters of Charity also plans to use part of the proceeds of the sale to create the Daughters of Charity Healthcare Foundation in St. Louis. The foundation will issue grants to not-for-profit organizations involved in holistic healthcare activities, Eike said.