While joining a Roman Catholic conglomerate the likes of Catholic Health Initiatives and Catholic Health East is fashionable these days, Bon Secours Health System is taking a pass on the haute couture of healthcare.
The Marriottsville, Md.-based system may not be tres chic, but it doesn't think it needs to be in order to thrive.
The 14-hospital system is focused on cementing local partnerships, rather than national ones, and growing the system through nonacute-care services. This comes after a growth spurt in recent years that has more than doubled its number of hospitals.
"It's not that we are opposed to those mega-mergers; it's just you have to have a reason to do them," says Christopher Carney, Bon Secours' chief executive officer. "At the current time, there is not a compelling reason why we would need to merge."
Homecoming. Bon Secours' emphasis on nonacute care is a homecoming of sorts for the system-but this time with a higher profit margin.
Founded in 1983 by an order of nuns that claims to have provided the world's first formal home healthcare service in Paris in 1824, Bon Secours' chosen course has taken it into a new line of business-assisted living-a lucrative side of the healthcare industry.
Since last year, Bon Secours has opened three new assisted-living facilities-two of them in recent months-and three more will open by next year.
This diversification by healthcare systems is going on throughout the industry, says the Rev. Michael Place, president of the St. Louis-based Catholic Health Association.
"One of the interesting things is how different systems are making different strategic choices," Place says. "The situation in which healthcare is being conducted today is so fluid. . . . From my perspective, what we're seeing is a ministry that is being extremely creative about how it can strengthen itself."
For providers, assisted living can be profitable because private-pay dominates the field and fattens wallets.
"The cash flow to a provider of assisted living is wonderful because all your expenses are prepaid," says Sheryl Skolnick, an analyst at BancAmerica Robertson Stephenson in New York.
Because assisted living is generally not covered by federal or private health insurance plans, Skolnick says the payment structure is a lot "like renting an apartment-you pay on the first of the month with a check."
Bon Secours is in the assisted-living business with Richmond, Va.-based Manorhouse Retirement Centers and Des Moines, Iowa-based Life Care Services, two for-profit companies that develop and manage assisted-living facilities.
In the joint ventures it has with those companies, Bon Secours holds the majority equity interest, and the for-profit companies manage them.
Bon Secours is a partner with Manorhouse in one facility-Bon Secours Retirement Community at Ironbridge, a 103-bed facility in Richmond that opened in June 1997-and with Life Care Services for the remaining five.
Those five include:
Province Place of Maryview, Portsmouth, Va., a 78-bed facility opened in April.
Bon Secours Place at Port Charlotte (Fla.), a 110-bed facility opened in May.
Bon Secours Place at Health Park, Venice, Fla., a 103-bed facility scheduled to open in August.
Bon Secours Place at St. Clair Shores (Mich.), a 98-bed facility expected to open in March 1999.
Province Place at DePaul, Norfolk, Va., an 84-bed facility expected to open in June 1999.
The Ironbridge facility has about 50 residents so far, and the goal is to fill it by next year, says Stephen Lindsey, chairman of Manorhouse.
While financial figures for the center weren't available, Lindsey says it should do well, citing its location in a fast-growing, high-income area.
"It's a nice middle-class community," he says.
Big bills. All this new activity hasn't come cheaply for Bon Secours.
The assisted-living facilities cost an average of $8 million each to build, according to Bon Secours officials.
But they say the move into assisted living is a way for the system to round out the post-acute services it already offers, including long-term-care facilities and home health.
"Then, if they (assisted-living residents) need hospital care, home care or nursing home care at some time, hopefully, they would be able to move across our continuum," says Mary Anne Willson, Bon Secours' director of operations.
The move into assisted living is a trend other systems are following.
According to MODERN HEALTHCARE's 1998 Multi-unit Providers Survey, 84 systems reported an increase of almost 11% in the number of assisted-living apartments they owned or managed in 1997. For the 21 Catholic systems responding to the survey, those numbers increased by more than 40% (May 25, p. 35).
"A lot of these health systems feel a charitable obligation to the community," Skolnick says. "They have a mission to provide for the healthcare needs of the community, and assisted-living can be viewed as an absolutely necessary support for the elderly."
To some already in the assisted-living industry, hospitals' entry into the market is a wise move.
"We welcome it," says Karen Wayne, president and CEO of the Assisted Living Federation of America, a Fairfax, Va.-based trade association with 5,400 member companies.
Wayne says systems are adding assisted living to their care continuums at a time when it seems to be the top choice for long-term care.
Charting the course. Helping to lead Bon Secours on its new course is Christopher Carney, a 17-year system employee who took the helm as CEO in March 1997. Although that was when Carney was officially installed in the job, he assumed the duties when the system's former CEO, John Fitzgerald, resigned in September 1996.
It was during Fitzgerald's five-year reign at the top that Bon Secours saw its phenomenal growth explosion, expanding to 15 hospitals from six between 1994 and 1996, although some of those deals were completed after Fitzgerald left.
Bon Secours now has 14 hospitals because acute-care services at 148-bed Portsmouth (Va.) General Hospital were closed in January. To eliminate duplicate services in that market, those acute-care beds were transferred to Bon Secours-Maryview Medical Center in Portsmouth, which is about three miles away.
Remaining at Portsmouth General are 25 rehabilitation beds and outpatient services such as surgery and dialysis. However, a Bon Secours spokeswoman said Portsmouth General will close in April 1999.
Fitzgerald declined to comment for this story. He is now president and CEO of American Radiology Services, a radiology group practice headquartered in Pikesville, Md.
Fitzgerald reportedly resigned from Bon Secours over issues of growth. When he resigned, a Bon Secours spokesman said Fitzgerald wanted the system to expand more rapidly than the Bon Secours congregation did (Sept. 23, 1996, p. 14).
"The endgame was the same: It was just a matter of the speed," Edward Boyer, Bon Secours' senior vice president for corporate services, said at the time.
Fitzgerald's push for growth might be understandable, since he spent some time on the for-profit side of medicine.
He had been an executive at Hospital Corporation of America hospitals, including an associate and assistant administrator of HCA's flagship facility, Park View Medical Center in Nashville, according to an American College of Healthcare Executives guide.
In 1995, when Bon Secours was deep in the acquisition mode, it commissioned New York-based Lehman Brothers, an investment banking firm, to attract Catholic hospitals to its system (May 22, 1995, p. 3). The firm even ran an advertisement in MODERN HEALTHCARE soliciting acquisitions of hospitals, home health companies and other facilities for Bon Secours.
By the time Carney, 51, took over Bon Secours, he had been with the system for 16 years, most recently at its strong Virginia division, where he was regional vice president.
Growing pains. When he was tapped for CEO, Carney said the Bon Secours board and its sponsoring congregation were anxious to undergo a major review and revision of their strategic plan.
The growth the system underwent, Carney says, didn't come without its challenges.
"It put a substantial strain on many people in the organization because the infrastructure, while it was in place, was probably taxed to handle as much growth as we did," he says.
In spite of the challenges of that growth, Bon Secours officials say the system is better off for it.
"Having the growth all at one time, where it has its strains in the amount of work that needs to be done, also brings a new life to the organization," says Sister Patricia Eck, Bon Secours' board chairwoman.
Carney adds: "It has expanded our presence in communities where we did not have a presence."
According to MODERN HEALTHCARE's Multi-unit Providers Survey, Bon Secours is the country's 33rd-largest healthcare system when ranking is determined by net patient revenues (May 25, p. 48). In 1997, Bon Secours reported more than $1 billion in net patient revenues, compared with $735 million in 1996. The system has about 20,000 employees.
According to the survey, Denver-based Catholic Health Initiatives is the largest Catholic system, based on revenues, and sixth overall, with $3.7 billion in net patient revenues in 1997.
Financial fallout. Bon Secours' building and acquisition booms have done more than just expand the system's presence.
According to Moody's Investors Service, Bon Secours also has more than doubled its outstanding debt (including guarantees) to $750 million as of August 1997, compared with $347 million in August 1994.
"The dramatic increase in the system's debt over the past three years has significantly reduced Bon Secours' financial cushion," according to an April analysis of the system conducted by Moody's.
In August 1997, Moody's downgraded Bon Secours' underlying rating to A3 from A2 primarily because of the system's increased debt.
While the system has an underlying rating of A3-a reflection of its credit risk-the system also carries a top rating of Aaa. The triple-A rating comes because Bon Secours carries bond insurance. Having the bond insurance allows the system to get a lower interest rate than the underlying rating would otherwise bring.
Financial statements provided by Bon Secours show total liabilities of $899 million in 1997, up 45% from $620 million in 1996. However, the system also posted profits of $50.3 million on $1 billion in revenues in 1997, a 60% increase from $31.4 million on revenues of $761 million in the previous year.
"Management at Bon Secours believes that the strategic actions they are taking will position the system better in the long term," says Bruce Gordon, a vice president with Moody's in New York. "We don't necessarily dispute that; we believe a number of the actions they have taken will do just that."
According to Moody's, Bon Secours saw its profit margin increase to 4.5% in 1997 from 4% in 1996. However, that's still down from 5.7% in 1995, 4.6% in 1994 and 5.9% in 1993.
Shying away. Under Carney, Bon Secours has shied away from some major upheavals.
Early on, Bon Secours had been part of talks to form Radnor, Pa.-based Catholic Health East, but when that deal was sealed last year, Bon Secours wasn't on board.
At the time, Carney said the hospital system needed to spend time focusing on its recent acquisitions (June 2, 1997, p. 8).
But that doesn't mean the system is being isolationist.
Instead, officials say they are relying on local partnerships. Some of those collaborations include:
Bon Secours-St. Francis Xavier Hospital is merging with two other Charleston, S.C., hospitals to create a new company that will consolidate 42% of the city's acute-care beds.
Partnering in the deal with Bon Secours are the Medical Society of South Carolina, which owns 398-bed Roper Hospital and 104-bed Roper Hospital North, and Charlotte, N.C.-based Carolinas HealthCare System. Terms of the deal call for Carolinas to manage the three hospitals and own 10% of the new company. The deal is expected to be completed in early July, pending antitrust approval.
This will be the second partnership between Roper and Bon Secours-St. Francis Xavier. In 1994, they formed another joint company, but that partnership was dissolved in 1996.
In Grosse Pointe, Mich., the Internal Revenue Service earlier this year cleared a proposed joint venture between 242-bed Bon Secours Hospital and 144-bed Henry Ford Cottage Hospital. The deal, expected to close in August, has been touted as a way to bring a comprehensive service network to the east side of metropolitan Detroit.
Bon Secours-Holy Family Regional Health System, Altoona, Pa., announced in April it had agreed to negotiate a link with Conemaugh Health System, Johnstown, Pa., a regional integrated delivery system with four acute-care hospitals.
Precisely how the two will partner is not known yet. But, again, the goal is to develop a regional healthcare network.
"We think it makes a lot of sense to have national presence, but also decentralizing the decisions as much as possible to the local level," says Jim Weidner, Conemaugh's system development executive.