St. Luke's Hospital in Kansas City, Mo., has agreed to pay $3 million to the Episcopal Diocese of West Missouri, the hospital's sponsor, to create an endowment for the diocese.
The first $2 million came from an unanticipated and unbudgeted refund from Medicare, and was paid in December. The remaining $1 million will be paid out of hospital retained earnings over the next seven years.
The diocese will invest the money and use the income to support local parishes and ministries of the church.
The gift raises the question of whether it is appropriate for a not-for-profit healthcare institution, which makes its money from Medicare, Medicaid, commercial insurers, patient billings and charitable contributions, to divert its profits to a nonhealthcare organization.
In the intellectual tug-of-war over investor-owned hospitals, the not-for-profits-and especially Cath-olic hospitals-have argued in favor of recycling hospital revenues for community healthcare needs rather than giving those dollars to stockholders.
But not-for-profits haven't always practiced their own preachings.
In April 1996 SSM Health Care System took over Cardinal Glennon Children's Hospital in St. Louis from the local Catholic archdiocese to bail the church out of a financial hole. SSM used $25 million of its own reserves to buy the hospital, which otherwise could have been merged into the system in a noncash transaction.
Of that amount, $1 million went directly to Pope John Paul II for his own discretionary uses.
G. Richard Hastings, St. Luke's chief executive officer, said the board decided to make the gift just before the merger with Shawnee Mission (Kan.) Medical Center went through last fall. After the merger no such gift would have been possible.
"This was the last opportunity to repay the diocese for its contributions to St. Luke's over the years," Hastings said. "It and its leadership helped the hospital many times."
The hospital had never before sent money to the diocese.
Two years ago, when St. Luke's was discussing a merger with two Catholic hospitals in Kansas City, it learned they made annual payments to their sponsoring order of sisters.
"That is something that has been happening in the Catholic systems for years," Hastings said. "If you're giving these dollars to the Catholic order, why wouldn't it be the same for the bishop?"
Spokesmen for two national Catholic hospital systems confirmed that their hospitals are assessed regular contributions to their sponsoring congregations.
John C. Buchanan, bishop of the Episcopal Diocese of West Missouri, said the money was needed to carry out the church's ministry in the diocese. Under the hospital's charter, the bishop is chairman of the board and runs its meetings.
Buchanan said it would be unrealistic to carry on a fund-raising campaign for the diocese because Episcopalians in the region tend to support St. Luke's, a parochial school, a newly opened Episcopal nursing home and retirement community, and other programs. There isn't much money left over for the church itself.
Buchanan said that's why he asked the hospital to donate $3 million for the church's own ministry.
The diocese founded the hospital in the 1880s. The hospital's articles of incorporation, the bishop said, state that "`All of its activities, objects and purposes are intimately connected with and operated in conjunction with the Episcopal church and the Episcopal Diocese of West Missouri, and will abide by the constitution, canons, doctrine and discipline of the church and diocese.' Pretty strong language, isn't it?"
Another part of the charter says that in case of dissolution all the hospital's personal and real property shall devolve to the Episcopal diocese. "If St. Luke's Hospital were to be sold to Columbia/
HCA" Healthcare Corp., the bishop said, all the proceeds would go to the diocese.
St. Luke's had total assets of $387 million and liabilities of $168 million in 1995, or $219 million net, according to figures from HCIA, a Baltimore-based healthcare information company. That year its operating profit margin was 8.4% on $218 million in net patient revenues.
The hospital also recently won the 1997 National Quality Health Care Award sponsored by the National Committee for Quality Health Care (Jan. 27, p. 40).
Buchanan said a precedent for such a sale occurred in Utah, where St. Mark's Hospital in Salt Lake City was sold to Hospital Corporation of America in 1987. (HCA merged with Columbia in 1994.) According to Malin Foster, spokesman for the Episcopal Diocese of Utah, that sale netted
$35 million. It was put into a trust that allows each parish in the diocese to have its own priest, which was not the case before. St. Mark's was sold because "it's too complex for a church to be in the hospital business," Foster said.
Buchanan hastened to add that the Diocese of West Missouri has no intention of following Utah's lead.
Several years ago, Columbia tried to pressure St. Luke's board into selling, but St. Luke's officials believed the two corporate cultures were incompatible.
"If I stretch my imagination as far as I could stretch it, I could not imagine that happening," the bishop said of a sale to Columbia.
Nevertheless, the board was not unanimous in supporting the $3 million gift. Of the 51 board members, 39 are required to be Episcopalians, including the officers. Of the 39, seven voted no. Some believed the donation lay outside the mission of the hospital; others felt it would hurt the capital campaign of St. Luke's Foundation.
"I think that was about all," Buchanan said. "Those are reasonable objections." No one has resigned from the board.
The donation apparently has not aroused much dissension in the local community.
"I didn't see what the big deal was," said one Kansas City Episcopalian active in healthcare. "I mean, $3 million-for St. Luke's Hospital that's a rounding error."
The money came from a large payment by Medicare. A HCFA spokesman in Washington said it was not disproportionate-share money but an audit correction of about $2 million.
When hospitals file their annual reports with HCFA, they are required to pay back any amount their books show as an overpayment. In this case, St. Luke's paid in a substantial amount based on its annual report of Dec. 31, 1994.
But HCFA's own audit, performed later, found "they did not owe us that money," the HCFA spokesman said. "This is why it's a payment to them."