Christus Health, Irving, Texas, posted its biggest profit ever in fiscal 2003, and the not-for-profit system also is boasting a stronger balance sheet and the anticipation of more operational improvements in 2004.
But like publicly traded companies whose stock falls when profits don't match Wall Street expectations, Christus has suffered negative bond rating actions because its turnaround has not exceeded analysts' goals for the system.
The nation's eighth-largest Roman Catholic system, founded in 1999, reported net operating income of $26.1 million for the fiscal year ended June 30, according to unaudited results, versus a $93.3 million operating loss the previous year. Net patient service revenue was $2.02 billion, up from $1.99 billion the prior year. Christus expects to release audited 2003 results in September.
Christus, which operates 24 acute-care hospitals primarily in Arkansas, Louisiana and Texas, exemplifies the hospital industry's recent operational improvements, although analysts remain wary about the poor economy and uncertain reimbursement rates (Aug. 11, p. 20).
Some operational improvements stemmed from actions in fiscal 2002, when the not-for-profit system took a one-time charge of $32 million as it divested some physician practices and transitioned others to incentive-based contracts. Separately, it wrote down $22.1 million to adjust the fair market value of medical office buildings based on new appraisals. Minus those one-time charges, the system's operational loss was $17.8 million in the year ended June 30, 2002, Chief Financial Officer Jay Herron said.
But Herron said the restructuring reduced physician losses to $8.3 million in 2003 from $19 million in 2002. He also cited higher reimbursements from managed-care plans and better collections for the improved fiscal picture in 2003.
Herron said physician operations are expected to break even this year, along with operational improvements from the recent sale of a long-term-care facility in Waco, Texas, and the pending sale of the Christus St. Joseph's Health System in Paris, Texas. Those facilities lost $3.3 million and $12.4 million respectively in fiscal 2003.
Created by a merger of the Sisters of Charity of the Incarnate Word, Houston, and the Incarnate Word Health System, San Antonio, Christus has posted two profitable fiscal years out of the past five.
Rating agency Standard & Poor's, which maintains an upper medium grade A+ rating for Christus, changed its outlook on the company to negative from stable in June, citing lower-than-expected operating performance. Moody's Investors Service issued a downgrade earlier this year.