Lloyd Dean's first year as top executive at Catholic Healthcare West has been like that of a new manager of a baseball team who discovers midseason that some of his best hitters want to be traded.
As Dean marks his first anniversary next month as president and chief executive officer, the San Francisco-based system is in danger of losing some of its moneymaking hospitals.
"There are some challenges that I did not foresee, but I'm up to the challenges," Dean said.
One of CHW's religious sponsors, the Daughters of Charity, West Province, in Los Altos, Calif., has said it wants to leave 48-hospital CHW and create a new healthcare system with its seven California hospitals (May 21, p. 6).
If the Daughters does defect, it will cost CHW much-needed profits at a time when the system is working hard to reverse four years of operating losses totaling more than $878 million.
The Daughters' seven hospitals collectively posted operating profits of more than $19 million on net patient revenue of more than $619 million during the fiscal year ended June 30, 2000, according to financial data from the California Office of Statewide Health Planning and Development.
The hospitals are 283-bed O'Connor Hospital, San Jose; 255-bed Seton Medical Center, Daly City; 121-bed Seton Medical Center Coastside, Moss Beach; 195-bed Robert F. Kennedy Medical Center, Hawthorne; 414-bed St. Francis Medical Center, Lynwood; 93-bed Saint Louise Regional Hospital, Gilroy; and 350-bed St. Vincent Medical Center, Los Angeles.
Only two of the seven hospitals-Saint Louise and Seton Medical Center Coastside-didn't post an operating profit last year and lost a combined $6.7 million. The most profitable of the hospitals was the Lynwood facility, which finished more than $7.6 million in the black on operations last year, the state data show.
How the defection will affect CHW is uncertain because the financial terms of the Daughters' planned exit aren't known yet.
"It's my impression of this management team that they are clearly committed to rebuilding the credit strength of CHW, and I think that they would be highly sensitive to how any type of transaction would affect CHW's credit," said Lisa Zuckerman, a director at Standard & Poor's. In December, S&P downgraded CHW's rating on $1.3 billion in debt to BBB from BBB+.
Robert Issai, chief financial officer of the Daughters' West province, said the religious community would like to have the unwinding completed by September or December.
"We are not leaving because of financial difficulties at CHW," Issai said. "They have turned the corner, and we wish them the best luck to continue."
The Daughters have said they want a healthcare system with a simpler structure. CHW leaders met with Daughters officials last week to discuss the unwinding. Officials of the Daughters-which merged with CHW in 1995-have said they don't plan to join another healthcare system.
In a wide-ranging interview with Modern Healthcare to discuss his first year on the job, Dean said he is pleased with the progress the system has made during a "great" and "very busy" year. Dean, the former chief operating officer at Advocate Health Care in suburban Chicago, replaced Richard Kramer, who left CHW under fire in September 1999 after 10 years on the job (Aug. 2, 1999, p. 2).
In spite of facing the loss of some profitable hospitals, Dean still is bullish that CHW will continue its financial turnaround and break even on operations by the end of the next fiscal year in June 2002.
"No matter what, we will be at break-even at 2002," Dean said.
He is sticking with a projection the system made in February when it unveiled a sweeping corporate reorganization plan for turning around the system (Feb. 12, p. 4). Systems officials have reported the CHW had $5 million in operating profits during the first three months of this year.
"The challenging aspects of the job are what I expected and have met every aspect of my expectations about being very challenging," he said.
In addition to the Daughters' curve ball, Dean has had to tackle whistleblower lawsuits, seismic retrofitting, California's energy crisis, labor relations, system finances and CHW's massive restructuring program, which included appointing a new senior management team.
Dean said he found out in a formal way about the Daughters' desire to leave CHW less than a month ago.
"Anytime a member of the family decides, or requests, to do something on their own, you respect it. You're a little disappointed because you've had such a good relations," Dean said. "I'm not angry at the Daughters."
The Daughters is one of nine religious communities that sponsor CHW. The remaining eight don't plan to leave, Dean said.
Dean wouldn't elaborate on what approvals are necessary for the Daughters to leave CHW, except to say that one of the groups that must grant approval is the CHW board of directors.
Mike Griffing, director of collective bargaining for the California Nurses Association, which represents 800 nurses at three of the Daughters' hospitals, expects any new healthcare system to honor existing labor contracts.
"As far as we're concerned, it's trading one corporation for another," Griffing said.