The good news is Catholic Health Initiatives made money in its last fiscal year after losing money in the previous year.
The bad news is its total profit was only 1.7%--far from the 6.5% profit the Denver-based system would like to see three years from now, says Linda MacDonald, CHI's director of capital finance.
"It is certainly movement in the right direction, and about that we are pleased," MacDonald says. But she added: "It is not the end of the story."
Late last month, CHI released financial data for its fiscal year ended June 30. The company made $96.5 million in net income on total revenue of $5.6 billion. That's a huge improvement from the
previous fiscal year, when CHI lost almost $54 million on total revenue of $5.2 billion.
Patricia Cahill, CHI's president and chief executive officer, hailed the system's financial performance at a speech before bond investors in Chicago in late September.
She admitted there was "not a lot of due diligence done" when the system was formed in 1996 and that dealmaking had taken precedence over operations, leading to poor performance at some facilities.
But CHI has "bitten some very big bullets," Cahill told the audience at the healthcare forum sponsored by the Bond Buyer newspaper. "We're not going away."
CHI now operates 69 hospitals in 22 states with more than 56,000 full-time employees. In its last fiscal year, CHI logged almost 450,000 acute-care admissions.
M. Craig Kornett, an analyst with Fitch, a New York-based credit rating agency, says the improvement reflects how the system has streamlined operations.
"While they stay close and focused on their mission, they are making the hard corporate decisions that all systems large and small face," Kornett says.
Some of CHI's most newsworthy turnaround actions:
* Selling 256-bed St. Joseph Hospital, Lancaster, Pa., to Health Management Associates, a for-profit hospital chain headquartered in Naples, Fla. (July 10, p. 2).
* Discontinuing managed-care operations at Englewood, Colo.-based Centura Health, a joint operating company in which CHI holds majority interest (April 3, p. 42).
* Pulling the plug on a Medicare managed-care plan at St. Joseph Healthcare, Albuquerque (July 10, p. 6).
Kornett said analysts will meet with CHI officials this month to conduct a ratings review. Currently, CHI holds a AA- rating from Fitch on $1.9 billion in outstanding debt.
CHI's MacDonald says the system's turnaround began with a major performance improvement plan that included detailed monthly reporting and scrutiny of financial and utilization data from some of CHI's worst-performing markets. This program is still in effect.
The system, MacDonald says, also renegotiated or dumped low-paying managed-care contracts. CHI renegotiated contracts with some physicians and divested others.
Helping to boost CHI's bottom line was $179.4 million in investment income. However, when that is subtracted, CHI finished the year with only about $10 million in operating profits--essentially at the break-even point.
The system would like to see its operating profit hover around the 2% to 2.5% mark, MacDonald said.
--Modern Healthcare reporter Mary Chris Jaklevic contributed to this report.