Two large Roman Catholic healthcare systems lost millions on operations in the last fiscal year, and now one of them may have run afoul of federal law because it wants to shut down its Medicare HMO.
The two systems with the lackluster performance were 47-hospital Catholic Healthcare West, San Francisco, and 46-hospital Trinity Health, Novi, Mich.
CHW last week reported operating losses of almost $317.9 million on $4.5 billion of operating revenue in the fiscal year ended June 30, and Trinity posted operating losses of $73.8 million on $4.2 billion in operating revenue during the same period, according to financial data provided by the two systems.
Trinity was created May 1 by the merger of Farmington Hills, Mich.-based Mercy Health Services and Holy Cross Health System of South Bend, Ind. Trinity's report marked its first disclosure of consolidated financial data.
Much of Trinity's operating deficit--or $67.4 million--came from losses on the closure of its 268-bed Mercy Hospital of Detroit last year.
In addition to Trinity's operations challenges, the system has attracted the scrutiny of federal officials.
HCFA has accused Trinity's Farmington Hills-based HMO, Care Choices, of trying to renege on a Medicare+Choice contract that the agency says requires the plan to stay in the Medicare risk-contracting program next year.
Care Choices recently announced plans to pull out of the Medicare risk contracting business by Dec. 31. It would join at least 10 other not-for-profit hospital systems that have done the same thing (Oct. 23, p. 6).
According to HCFA, Care Choices failed to tell the agency by a July 3 deadline that it didn't plan to continue its Medicare HMO past Dec. 31.
J. Rick Newsome, Care Choices' chief operating officer, said his plan didn't notify HCFA because it originally planned to continue its Medicare HMO. But Care Choices administration changed its mind, he said.
Care Choices argues that because it submitted its annual application to operate a Medicare HMO to HCFA after that July 3 deadline, its contract shouldn't count.
"It is not the kind of behavior that is acceptable," said Robert Berenson, M.D., acting deputy administrator of HCFA in Washington.
In a Nov. 1 letter, HCFA told Care Choices said it has referred the matter to HHS' inspector general's office to consider imposing civil monetary penalties. HCFA also said in the letter that it's considering slapping Care Choices with a fine of up to $25,000.
Newsome said the planned exit from the Medicare HMO business is unrelated to Trinity's operating losses or any turnaround effort by the system.
"We would have made the decision even if Trinity Health had surpassed their budget expectations," he said.
Newsome said Care Choices' 4,300-enrollee Medicare HMO lost $3 million in the fiscal year ended June 30. Trinity spokesman Stephen Shivinsky said the Medicare HMO was collecting $525 per member per month, but its costs were $577 a month.
Overall, Care Choices, with more than 200,000 enrollees, essentially broke even in the last fiscal year by posting total profits of $100,000 on total premium revenue of $300 million. Of the plan's members, 95% are commercial, Newsome said.
At CHW, the system's losses prompted quick action from the New York-based bond rating agency Standard & Poor's, which put CHW's bonds on CreditWatch after analysts said the system failed to reduce its losses by $100 million as predicted.
In the fiscal year ended June 30, 1999, CHW posted operating losses of almost $339.7 million on operating revenue of about $4 billion. The system last posted operating profits in 1996.
Jesse Bean, CHW's vice president and treasurer, said the system's improvement was set back in the fourth quarter by operational losses in its Bakersfield, Calif., region and the write-down of some assets. He wouldn't discuss CHW's first-quarter performance in this new fiscal year except to say, "We're definitely on plan."
At both CHW and Trinity, revenue from nonoperating sources softened the financial blow. Overall, CHW lost a total of $47.6 million on total revenue of $4.8 billion in the fiscal year ended June 30, while Trinity enjoyed total profits of $32.8 million on total revenue of $4.3 billion during the same period.