Seeking to consolidate its authority and boost its negotiating position in affiliation discussions with other Catholic systems, Eastern Mercy Health System fired the 23-member board of Holy Cross Hospital in Fort Lauderdale, Fla.
Holy Cross trustees refused to give up power in a consolidation plan proposed by Eastern Mercy, the Radnor, Pa.-based system with which it is affiliated. Eastern Mercy operates 15 hospitals in Alabama, Florida, Georgia, Maine, New York and Pennsylvania.
After the ousted Holy Cross trustees were escorted out of the hospital by security guards before their monthly board meeting in late July, 14 new hospital trustees were seated. The trustees then approved the system's new bylaws and consolidation plan, which weakened local control over the 437-bed hospital by giving the system power to do everything from selecting the chief executive officer to making decisions on supply purchases.
Nineteen former Holy Cross trustees voted last week to file a lawsuit against Eastern Mercy to regain their board seats and determine who owns the hospital-the system or the community.
Sister Georgine Scarpino, an Eastern Mercy board member, said the system's nine sponsoring congregations felt the board's ouster was unpleasant but necessary and legal to further the system's long-term strategic plans.
"With Holy Cross not participating fully in our system, we are in a weak position to negotiate with other congregations on the East Coast," Scarpino said.
Daniel Russell, Eastern Mercy's president and CEO, told MODERN HEALTHCARE* the system has been holding collaborative talks over the past year with at least four other systems and one freestanding Catholic hospital.
Those systems include eight-hospital Bon Secours Health System, Marriottsville, Md.; four-hospital Allegany Health System, Tampa, Fla.; two-hospital Sisters of Providence Health System, Springfield, Mass.; four-hospital Covenant Health Systems, Lexington, Mass.; and Mercy Hospital, Miami.
Daughters of Charity National Health System, St. Louis, initially was involved with the talks but dropped out to concentrate on collaborative arrangements in markets such as Buffalo, N.Y., and Jacksonville, Fla.
"Right now we are talking about a co-sponsorship model," said Sister Marie Celeste Sullivan, Allegany's president and CEO. At a meeting scheduled for later this month,"we hope to agree on some operating principles," she said.
John Fitzgerald, Bon Secours president and CEO, said the systems have talked about conducting joint managed-care contracting, obligated financing groups, cash management and insurance programs. The purpose would be to reduce costs and form regional delivery systems in markets where the systems operate freestanding hospitals.
"We'd like something to happen next year," Russell said. "The majority of the other systems have more of a commitment (from their hospitals) than ours. We are working on that with our hospitals."
At Holy Cross, Eastern Mercy wanted the trustees to merge the holding company and hospital board and fully participate in its group purchasing, insurance and audit programs.
But Fred Millsaps, an ousted trustee of 25 years, said the former trustees felt full system participation was unnecessary and financially risky.
"They wanted us to turn over financial control and tens of millions of dollars of assets we raised in the community," Millsaps said. "Our local board felt it is our fiduciary responsibility to see that the community's money stays here and not be available for uses in other places."
An Eastern Mercy task force is studying the benefits of consolidating tax-exempt borrowing of all affiliated hospitals into one or several obligated financing groups, Russell said. Each hospital now borrows tax-exempt money on its own, and consolidating balance sheets can lead to lower interest costs.
Over the past 10 years, multihospital healthcare systems like Eastern Mercy have been moving power from hospital boards to corporate boards to streamline decisionmaking and save money on overhead expenses.
Last year, Sisters of Charity of St. Augustine Health System in Cleveland fired the board of 426-bed Timken Mercy Medical Center in Canton, Ohio, when local trustees declined to support the congregation's decision to sell the hospital to Columbia/HCA Healthcare Corp. (May 29, 1995, p. 3).
"Distinctions between not-for-profits and investor-owned systems have blurred a great deal over the past 10 years in governance and operations," said Edward Hopkins, an attorney with Steel Hector & Davis, a law firm in West Palm Beach, Fla. "Within the next 10 years they will be virtually indistinguishable except for the return on investment for-profits pay to shareholders."
Holy Cross, which is one of Eastern Mercy's most profitable hospitals, was built in 1959 with $1.3 million of community donations and $1.3 million provided by the Archdiocese of Miami, which has been repaid over the years. Sisters of Mercy became its sponsor in 1964.
In 1994, Holy Cross earned $14.5 million on revenues of $144.8 million, a 10% total profit margin, according to HCIA, a Baltimore-based healthcare information company. Eastern Mercy earned $69.3 million on revenues of $1.66 billion in 1995, a 4% operating profit margin, system officials said.