Catholic Healthcare West is finally seeing the fruits of its 4-year-old reorganization, as the San Francisco-based system ended the year in the black for the first time in six years, earning $51 million in fiscal 2003.
The results come at a time when many hospitals throughout the industry are improving financially. Ascension Health, St. Louis, reported its net income nearly doubled to $215 million in fiscal 2003 after its merger with Carondelet Health System (Oct. 13, p. 4). Both systems' financials were released as the Medicare Payment Advisory Commission contended that the federal government has overcompensated hospitals for inpatient care. The MedPAC memo said Medicare payments per discharge increased 27.2% in the last decade while costs per discharge increased only 14.3% (Oct. 13, p. 10).
Patient revenue increased 9% at Catholic Healthcare West to $4.9 billion in the fiscal year ended June 30, up from $4.5 billion in the previous year, according to the Roman Catholic system's results, released last week. In fiscal 2002, the 41-hospital system reported a $54 million loss as it experienced higher technology and labor costs and a decline in investment returns. The move into the black comes a year later than officials originally had hoped (Oct. 14, 2002, p. 12).
"I feel really good because I have been part of one of the significant turnarounds in healthcare," said system President and Chief Executive Officer Lloyd Dean, who came aboard in 2000 after CEO Richard Kramer stepped down following the system's money-draining expansion strategy. "Many were betting Catholic Healthcare West would have to fold. We have repositioned the organization so the ministries can go forth."
The strong financial performance could act as a catalyst for the system to expand facilities, but it has no plans to acquire hospitals in the coming year, Dean said.
Officials began a corporate reorganization in 1999, which included eliminating 350 jobs, to reverse four years of losses that totaled more than $878 million. Dean credited the reorganization and "fundamentals of running a hospital" with improving the results. The system contained costs by streamlining 10 regional hospital networks into four divisions and cutting the number of executives overseeing the networks from 150 to four, he said. The result was $70 million in savings annually. Catholic Healthcare West operates hospitals in Arizona, California and Nevada.
"We have achieved this financial success while remaining focused on our mission and values," Dean said. "This is not just about dollars but maintaining the ministries."
It provided $422 million in uncompensated care during fiscal 2003, up 15% from $368 million the previous year.
The system is considering making additional investments in its hospitals, especially facilities in California, Dean said. He will be "focused on optimizing markets" it is already in before considering expanding into new locations, he said.
Others are taking notice of the financial turnaround. Moody's Investors Service upgraded the system's bonds last week, affecting $2.2 billion in outstanding debt, analyst Lisa Martin said. Standard & Poor's revised its outlook from stable to positive. The system is making progress on core operations and has identified low-growth and low-return markets that likely will be targets for consolidation in the next two years, analysts said.
"They had a very good year," Martin said. "Over the last several years, they have streamlined the management team and improved financial reporting."
Bill Cox, president and CEO of the Alliance of Catholic Health Care-who was with the Catholic Health Association for nearly 20 years before stepping down in 1998 as executive vice president-credited Dean with the turnaround. Cox's Sacramento-based association represents 68 Catholic hospitals in California. "There is no doubt that Lloyd Dean's leadership has made a critical difference," Cox said.
More work needs to be done, as the system will invest more than $800 million in facilities during the next decade as part of California's mandatory seismic-upgrade program. Providing care for the uninsured and meeting the new standards for the state's nurse-to-patient ratios also will be a challenge, Dean said.