Rodin's famous statue, The Thinker, could be the new mascot for San Francisco-based Catholic Healthcare West.
"I think they are going through a period of fairly heavy soul-searching," says Lisa Zuckerman, an analyst and associate director in Standard & Poor's public finance department.
Lately, CHW has had much to ruminate about.
A Roman Catholic powerhouse with 48 hospitals in three states, CHW has watched its credit rating slide to BBB+ from a high of AA+ just two years ago.
The last year the system had profitable operations was in 1996, and this year CHW is expected to fall short of its goal to reduce operating losses to $240 million from $340 million in the fiscal year ended June 30, 1999, according to a recent Standard & Poor's report.
Last year, CHW embarked on what Standard & Poor's calls "an ambitious" four-year, $350 million turnaround plan.
"Although it's improved from where we were last year, as the Standard & Poor's document indicates . . . we aren't going to get quite as far as we anticipated getting," says John Petersdorf, the system's interim chief financial officer.
Audited financial data for the fiscal year ended June 30 isn't available, Petersdorf says. He has worked as interim CFO since the June retirement of former CFO Jack Burgis.
Last month, Standard & Poor's affirmed its BBB+ rating on CHW's $2.2 billion in outstanding debt.
Nationally, Standard & Poor's rates 542 healthcare institutions. Of those, 15% are rated in AA categories; 39% in A categories; 38% in BBB categories, like CHW; and 8% are speculative grade, rated in BB categories or below.
Standard & Poor's analysts are expected to re-examine CHW's rating this month when they meet with system executives to discuss financial performance and a strategic plan.
In the meantime, CHW is burning through money. The system lost $184 million on operations through the third quarter ended March 31, according to unaudited CHW financial data.
However, thanks largely to $239 million in investment income, CHW's bottom line during the same nine-month period was $69.1 million.
The plan, Petersdorf says, is for CHW to turn the corner and have profitable operations in 2002.
"It will be, and it has to be," Petersdorf says. "Clearly, one cannot rely forever on investment (income)."
Petersdorf says a variety of factors contributed to CHW missing its target for reducing operational losses.
Among them is a write-down for the sale of a company that handled back-office functions for an emergency medical group.
Petersdorf says CHW will sell the company for less than it originally paid.
Also contributing were problems in CHW's Bakersfield, Calif., market, where it operates four hospitals. Staffing shortages meant higher overtime and agency costs for the hospitals, coupled with declining payer reimbursement and capitated managed-care contracts plagued by higher-than-expected cost and utilization, he says.
Problems in the business office of the Bakersfield-area hospitals played a role too, and unpaid bills caused the hospitals to have to increase their levels of bad debt.
"We did not collect our accounts as effectively as we should have," Petersdorf says.
In its Sept. 11 ratings report, Standard & Poor's knocked CHW for its difficulty in recent years in accurately projecting its operating performance and meeting budget expectations.
"Really, what we're looking for most is a reduction in the surprises that would come through at year-end," Zuckerman says.
Petersdorf calls the criticism by Standard & Poor's harsh and says accurately forecasting for the system is no longer a problem.
Overall, Zuckerman says CHW has seen some improvement in its operations. For example, the system's $184 million in losses on operations during the first nine months of fiscal 2000 was less than the $220 million CHW lost on operations during the year-ago period.
CHW, she says, has taken steps to tackle problems, including divesting physician practices and stopping further consolidation of its back-office functions through a costly shared-services initiative, into which CHW invested more than $200 million (July 24, p. 4).
CHW was expected last week to transfer its deed for 278-bed Long Beach (Calif.) Community Medical Center to the city of Long Beach and close the hospital by Oct. 2 (Sept. 25, p. 20).
"We certainly hope to see them come through this," Zuckerman says. "It takes a while to turn a large ship."
Kenneth Rodgers, a director in Standard & Poor's public finance department, says more changes are likely at CHW once its senior management team is fully in place and more experienced in their roles.
CHW President and Chief Executive Officer Lloyd Dean has been on the job only since June. The former chief operating officer of Advocate Health Care in Oak Brook, Ill., Dean replaced Richard Kramer, who resigned under fire in August 1999 (May 1, p. 27).