Despite a sweeping management reorganization last year that axed 350 jobs, Catholic Healthcare West failed to meet its goal of breaking even in the fiscal year ended June 30. The San Francisco-based system reported a $54 million loss as executives pushed back their profitability targets by three years.
After announcing $39 million in operating losses on $4.5 billion of revenue, Chief Financial Officer Michael Blaszyk last week predicted a 2% operating margin by 2005. The goal in 2003 is a modest .05% margin, he said. "We are confident our plan is the right plan and will yield the kind of benefits we are looking for," Blaszyk said.
The system, which oversees 42 hospitals in three states, pointed to several speed bumps in its turnaround, including higher labor and technology costs, a decline in investment returns, and the transfer of seven acute-care facilities to the Daughters of Charity Health System. CHW also had $80 million in charges for workers compensation and professional liability claims, Blaszyk said.
CHW officials began a four-year turnaround effort in 1999 to reverse four years of losses that totaled more than $878 million (Nov. 5, 2001, p. 10).
That it took longer than expected was not a surprise to several observers.
"They're in a very tough market," said Dennis Patterson of Chicago-based consulting firm Wellspring Partners, which assisted in the reorganization. He said CHW President and Chief Executive Officer Lloyd Dean, who was appointed in 2000, is making the right moves, but probably did not realize the amount of work that needed to be done before announcing his reorganization goals.
Van Johnson, president and CEO of competing Sutter Health, Sacramento, Calif., agreed. "They have a large ship to turn. These turnarounds don't happen overnight."
Bill Cox, president and CEO of the Alliance of Catholic Health Care, a Sacramento-based advocacy group, predicted a turnaround in the "not-too-distant future," noting the system has managed to retain physicians, nurses and other staff despite the losses.
The system stands as an example of many hospitals nationally that have improved their operating margins in the last year or two, but are impaired by new financial challenges. Last week, Standard & Poor's said credit ratings for not-for-profit healthcare providers slipped in the third quarter, while outlooks turned negative.