Alexian Brothers Health System's recent strategy has been like the Big Bang Theory in reverse. Instead of exploding into an array of new markets, the system has pulled out of some cities, concentrating all its hospital operations in the Chicago suburbs.
Alexian last exited a market late in 1998 when it sold 192-bed Alexian Brothers Hospital, San Jose, Calif., to Nashville-based Columbia/HCA Healthcare Corp. in a three-way hospital swap.
In the exchange, Alexian sold its California hospital to the for-profit giant for $60 million and then bought two suburban Chicago hospitals from Columbia for $254 million.
The two former Columbia hospitals, along with Alexian's flagship 393-bed Alexian Brothers Medical Center in Elk Grove Village, Ill., have given the system a small fiefdom in northwest suburban Chicago.
"We think we are getting a lot more attention and respect from the payers," says Dean Grant, who heads the system's hospital division, referring to successful contract negotiations. "It is hard not to recognize the Alexian Brothers presence in this market."
The hospitals Alexian bought from Columbia were 195-bed Hoffman Estates (Ill.) Medical Center, now called St. Alexius Medical Center, and 94-bed Woodland Hospital, a psychiatric facility now called Alexian Brothers Behavioral Health Hospital.
In the past decade, Alexian has sold two other hospitals, one in Elizabeth, N.J., and another in St. Louis.
But leaving the San Jose market wasn't cheap for Alexian. The system had to donate $4 million to a nearby competing Catholic hospital in an unusual antitrust settlement with the state of California. Columbia also had to make financial concessions to clear the deal, which gave Columbia control of three of San Jose's six hospitals (Jan. 4, p. 15).
Moody's Investors Service issued a bond rating report before the deal noting that by buying Columbia's suburban Chicago hospitals, Alexian would gain leverage to negotiate with managed-care companies.
However, Moody's cautioned that buying the hospitals would push Alexian's outstanding debt to $380 million from $156 million.
But Alexian has a healthy bottom line.
Last year, the system posted net income of $13.7 million on total revenues of $432.7 million.
That's a slight increase from 1997 when Alexian posted net income of $13.6 million on total revenues of $440.7 million, says Kelley Clancy, a spokeswoman for the system.
Alexian Brothers is a Roman Catholic religious order of men, which has about 50 brothers in the U.S. and 130 worldwide.
The brothers have been in the healthcare business for more than 130 years. However, it wasn't until 1963 that the system admitted the first woman to its hospitals.
While Alexian's hospital holdings are concentrated in Illinois, the system operates in other states. Those operations include long-term-care facilities in Missouri, Tennessee and Wisconsin, and three residential facilities in Illinois and Missouri for people with AIDS, Clancy says.
Despite increased consolidation in the Chicago suburbs, Alexian Brothers has no immediate plans for other hospital acquisitions or a merger, Grant says.
But if Alexian does make such plans, it would be because the system wanted to, not because it had to.
"The action we've taken in the last year put us more in the driver's seat," Grant says.