After improving its operating performance, Irving, Texas-based Christus Health has turned its attention to making market share-grabbing deals.
The not-for-profit Roman Catholic system cemented its acquisition of a rival hospital in Paris, Texas, last week, gaining an acute-care monopoly in the market. That followed an announcement in late July that Christus was negotiating a possible joint venture with a competitor in San Antonio, which would consolidate about 40% of acute-care services in that city.
While mergers reduce competition, Christus President and Chief Executive Officer Thomas Royer, M.D., said they're necessary for Christus to achieve profitability in those two markets, which are a drag on overall system performance.
Though saying it's not the driving factor, Royer said he expects that the deals, along with the acquisition of a profitable Mexican hospital earlier this year, will be viewed favorably by rating analysts. Standard & Poor's and Moody's Investors Service dropped the system from their high-quality categories last year, citing operating losses.
"I'm hoping that within the next 36 months we will be moved back to double A," Royer said. "That's one of our goals."
Royer told Modern Healthcare last week that the 24-hospital system expects to post a small operating profit of $3 million for the year ended June 30, on revenue of $2.2 billion, according to unaudited figures. That compares with an operating loss of $65.4 million the previous year, and a $146.1 million deficit in fiscal 1999.
Since its formation in February 1999 from the merger of Incarnate Word Health System, San Antonio, and Sisters of Charity Health Care System, Houston, Christus has divested unprofitable nonhospital assets such as physician practices and health plans. But it's still saddled with losses in some hospital operations.
In Paris, Christus bought 160-bed McCuistion Regional Medical Center from Texas Health Resources, a not-for-profit system headquartered in Irving, for an undisclosed price. Christus merged McCuistion, now known as St. Joseph's Medical Center North, with its 200-bed Christus St. Joseph's Hospital, the only other acute-care facility in Paris, now known as St. Joseph's Medical Center South.
For now, there are no plans to close either building, although duplicative services will be combined, Christus officials said. Texas Health Resources will operate a surgery center adjacent to the former McCuistion facility to provide reproductive services that would conflict with Catholic directives. The purchase eliminates hospital competition in Lamar County, Texas, which has a population of about 45,000. The nearest hospital, 39-bed Northeast Medical Center, operated by Brentwood, Tenn.-based Community Health Systems, is about 35 miles away in Bonham, Texas.
Royer said both Paris hospitals lost money in the year ended June 30, with a combined deficit of approximately $5 million and joint revenue of about $170 million.
"In order to stem those losses, we had to get rid of excessive beds." Royer said.
Tom Kelley, a spokesman for the Texas attorney general's office, said both the office and the Federal Trade Commission reviewed the sale before closing and decided not to challenge it on antitrust grounds. Kelley said the "dire" financial condition of McCuistion Regional, and the potential that it would close, justified the merger.
Losses also could help win antitrust clearance for a deal in San Antonio, where Christus wants to increase market share to 40% from 17%. In July, Christus signed a letter of intent to merge with San Antonio-based Baptist Health System, which operates five hospitals (July 23, p. 6).
Both have been losing money in the market. San Antonio-based Christus Santa Rosa Health Care, which operates four hospitals, lost $4.7 million in the last fiscal year on revenue of $260.3 million, according to unaudited figures released last week. Baptist, which since January has been under management by Chicago-based Wellspring Partners, a turnaround consulting firm, is projecting a loss of about $40 million on revenue of $400 million for the fiscal year ending Aug. 31.
Although a specific merger proposal hasn't been put forward, officials on both sides expressed confidence that a deal would pass muster once it is submitted to antitrust enforcers.