Catholic Healthcare West is taking a beating on its medical group business, which helped drive the fast-growing system into a $32 million operating loss last year.
Without the $39.6 million loss incurred by its CHW Medical Foundation, the San Francisco-based Roman Catholic system would have turned a $7.6 million operating profit in the fiscal year ended June 30, 1998.
CHW operates 48 hospitals in Arizona, California and Nevada, having added 11 facilities since 1997. But it's the system's medical group business that's dragging the company financials into the dirt.
The medical foundation's nearly $40 million loss last year follows a $43.8 million loss in 1997 and a $22.5 million loss in 1996.
Through the medical foundation, CHW operates seven medical groups with about 700 physicians.
CHW also owns part of San Ramon, Calif.-based PriMed Medical Management and Consulting Services, which operates the 2,500-doctor Hill Physicians Medical Group. But those results were not included in CHW's financials.
John Burgis, CHW's chief financial officer, admitted that the system, like others in California, has had trouble making money on its physician operations.
"We can't sustain that kind of loss going forward, and we're doing everything we can to change it," he said
CHW transferred $18.4 million to prop up the seven medical groups last year.
Overall, CHW earned a $73 million profit last year because of investment income. Total system revenues were $3.5 billion. That compares with a $36 million profit on total system revenues of $3.2 billion in 1997.
But investment income won't bail out the system this fiscal year.
For the quarter ended Sept. 30, 1998, CHW posted an overall loss of $23.8 million compared with an $8 million profit for the same year-ago quarter.
"If 1998 was a difficult year, 1999's going to be an even more difficult year," said Larry Wilson, CHW's executive vice president and chief operating officer. He predicted the system also will report an overall loss for fiscal 1999.
The fiscal 1998 results don't include revenues from hospitals acquired by CHW after last June. Those acquisitions include the December 1998 purchase of eight Southern California hospitals from Burbank, Calif.-based UniHealth for an estimated $165 million and the August 1998 purchase of 380-bed Community Hospital of San Bernardino (Calif.).
But CHW officials are predicting the system's growth rate will taper off. "There's definitely a settling-in period," Wilson said.