Red isn't a color Bon Secours Health System knows.
The 23-hospital Roman Catholic system has managed to maintain profitable operations at a time when other not-for-profit systems have lost money and blamed it on changing reimbursements, rising costs and bad managed-care contracts. In fact, Bon Secours has never lost money on operations since consolidating as a system in 1983.
"What I always say is, our claim to fame is not that we don't make our fair share of mistakes, but we're fairly quick to realize them and react to them," says Michael Cottrell, senior vice president of finance and chief financial officer at Marriottsville, Md.-based Bon Secours.
That reaction time has kept Bon Secours' operations profitable, especially in the wake of the Balanced Budget Act of 1997-a financial turning point for many systems. Most recently, Bon Secours posted an operating profit of $44.6 million on total revenue of almost $1.7 billion for its fiscal year ended Aug. 31, 2000. However, that profit falls to $22.6 million when a loss is figured in for the sale of 158-bed Bon Secours-Stuart Circle Hospital, Richmond, Va., which the system is relocating to a more affluent suburb.
Other Catholic systems have had more of a struggle during the past several years.
* Catholic Healthcare West, San Francisco, reported an operating loss of $317.9 million on operating revenue of $4.5 billion for the year ended June 30, 2000. The 47-hospital system last posted an operating profit in 1996.
* After losing almost $54 million on total revenue of $5.2 billion in its fiscal year ended June 30, 1999, Denver-based Catholic Health Initiatives turned around its finances last year and posted net income of $96.5 million on total revenue of $5.6 billion. The 68-hospital system reported an operating profit of about $10 million.
* Novi, Mich.-based Trinity Health had operating losses of $73.8 million on total revenue of $4.2 billion in its fiscal year ended June 30, 2000. Much of Trinity's losses were attributed to the closure of 268-bed Mercy Hospital of Detroit last year. The financial reporting was Trinity's first since it was created May 1, 2000, through the merger of Holy Cross Health System and Mercy Health Services. Trinity operates 46 hospitals.
But comparing Bon Secours to other systems such as CHW may not be an apples-to-apples comparison.
"We'd argue that market has a lot to do with it," says Jesse Bean, CHW's vice president and treasurer. For instance, he says doing business in California means high managed-care penetration and heavy union activity.
So how has Bon Secours accomplished its long track record of profitability?
It involves both an attention to strategy and to the finer operational details of running a multistate healthcare system. Some of that focus on operational details includes:
* Expecting facilities to use the group purchasing agreements it has with Premier, a San Diego-based group purchasing organization, rather than turning to local distributors who might charge more.
* Trying to minimize variation in the medical devices its uses, such as hip and knee replacements and pacemakers, so it can direct volume purchasing to select vendors and obtain better prices.
* Consolidating business offices in some markets, so all patient bills for hospitals are generated in one place and "they know how to get out a clean bill," Cottrell says.
* Relying on a stable of internal auditors to monitor the system's finances and operations.
When it comes to facility strategy, Bon Secours takes an aggressive approach, according to Moody's Investors Service, a New York-based bond-rating agency. In a recent report, Moody's says Bon Secours isn't timid when it comes to closing hospitals, relocating them-as it's doing in Richmond, Va.-or partnering with other providers to make the most of tough local markets.
For example, in Baltimore, Moody's points out that Bon Secours recognized the overbedding there and in 1999 shut down acute-care services at 95-bed Liberty Medical Center, a historically African-American hospital that was more than a century old and that had lost money. Bon Secours has another hospital nearby.
Working to increase market volume and market share is also a cornerstone strategy.
"When they go into a market, they seek to have a key position in that market," says Kenneth Rodgers, an analyst with Standard & Poor's, another New York bond-rating agency. "They don't desire to be in markets where they don't have a substantial influence . . . in terms of having the necessary critical mass of hospitals to effectuate a good strategic business position in that market."
For example, in the Detroit area, Bon Secours has a joint venture between its hospital and one owned by Henry Ford Health System, creating a business arrangement that the Moody's report says "generates strong annual operating performance and is beneficial to both organizations."
Rodgers says Bon Secours also has been helped because, unlike other systems, it had only minimal ownership of physician practices. Losses on physicians have hurt the finances of many healthcare systems, many of which have abandoned that strategy.