The new pope expected to be elected in coming weeks will be responsible for a U.S. Roman Catholic health system that is financially robust but bracing for an expected downturn in federal healthcare reimbursements.
Like other not-for-profit health systems, large Catholic health systems are managing their operations with an eye on becoming more efficient and profitable in an increasingly competitive environment, an effort that has paid off in recent years, system executives said.
But the brightening financial results among Catholic systems haven't necessarily resulted in a direct boost to charity-care spending.
"We are doing well. We've continued to improve our operating margins," said Kris Zimmer, senior vice president of finance for St. Louis-based SSM Healthcare, the 10th largest Catholic system in the country, according to Modern Healthcare's 2004 systems survey (June 7, 2004, p. S1). But the improved financial performance won't affect the amount SSM spends on its charitable mission, up or down, Zimmer said. "The mission is always important, in lean times and in good times," he said.
SSM's operating margin is about 3%, a healthy level relative to the not-for-profit hospital industry in general, which also has experienced a recent resurgence, according to a preliminary analysis by ratings agency Moody's Investors Service.
Moody's said that not-for-profit hospitals' audited financial statements for fiscal 2004 showed a significant improvement in median profit margin, utilization and debt-service ratio compared with fiscal 2003, based on a preliminary analysis of 233 stand-alone hospitals and single-state health systems representing about 42% of the hospital debt portfolio it rates.
The median operating margin for the hospitals and systems was 2.1%, up from 1.1% in fiscal 2003. Median operating expenses grew 8.15%, but the growth in median operating revenue was higher, 8.83%. Admissions, patient days, emergency visits and overall outpatient visits showed increases ranging from 1.78% to 2.51%.
Catholic hospitals are working to become more efficient with collections too. Consorta, a group purchasing organization based in Schaumburg, Ill., recently signed a contract for revenue recovery services. Consorta's 13 shareholder healthcare systems represent 60% of all Catholic hospitals in the U.S.
Member hospitals that use the service will get help in recovering from health insurers and third-party payers the full contracted revenue for services delivered to patients. The first-of-its-kind contract is with SMG Managed Care Solutions in Fort Lauderdale, Fla. In announcing the new contract, Consorta officials said the company has expertise "to collect revenue that our members might otherwise write off or deem uncollectable."
Large Catholic health systems saw their revenue surge last year when compared with the previous year, based on available financial data. Ascension Health, the largest Catholic system and sixth-largest system overall based on the number of its acute-care hospitals in 2003, achieved revenue growth of 11% in the fiscal year ended June 30, 2004. Total revenue for that period was $10.04 billion.
Ascension executives did not return calls for comment by deadline.
At least two of the other 10 largest Catholic health systems-Catholic Health Initiatives, Denver, and Catholic Healthcare West, San Francisco-experienced double-digit revenue growth in fiscal 2004.
At Catholic Health Initiatives, the second- largest Catholic health system based on number of beds, revenue grew 10.1% to $6.7 billion in the fiscal year ended June 30, 2004.
Catholic Healthcare West also has rebounded from a period of struggle, earning a bond rating upgrade last month to A- from ratings agency Standard & Poor's. The boost followed four years of improving operating results, according to an S&P research report. Revenue at Catholic Healthcare West grew 13.2% in the fiscal year ended June 30, 2004, to $5.4 billion.
The other large Catholic systems are doing well and reported 2004 revenue growth ranging from 4.74% for Marian Health System, Tulsa, Okla., to 8.1% for Bon Secours Health System, Marriottsville, Md. Numbers for 2004 were not published yet by Catholic Health East, Newtown Square, Pa.
Bon Secours is in the midst of reworking its operations, having jettisoned some New Jersey hospitals and hired a new chief executive officer, Richard Statuto, in February. "I'm pretty excited about the opportunities" available to the system, Statuto said.
Catholic Healthcare Partners, Cincinnati, benefited from improved managed-care contracts and from a more complicated mix of care that increased its reimbursements and boosted payments, said Bill Shuttleworth, chief financial officer for the system.
"A lot of (the Catholic systems) had very strong years, said Lisa Zuckerman, a director with S&P who tracks some of the large Catholic systems, including CHW. "Most of them are quite healthy," she said.
Catholic systems in general have benefited from their economies of scale and their shared values, Zuckerman said. "What's interesting about the Catholic systems is there probably is more of a common culture," she said. When Catholic and other faith-based hospitals join a system it's an easier process for them to combine operations.
While certainly there have been exceptions to that, Catholic hospitals in general can work together more quickly and easily than not-for-profit hospitals without a common link, she said.
Charity care spending varies
One of the values the Catholic systems share, they say, is a strong commitment to mission work and charity care for their patients. The leaders in charity-care spending as a percentage of revenue among the 10 largest Catholic systems were Catholic Healthcare Partners, and Christus Health, Irving, Texas, based on numbers from financial statements or those supplied by system officials. Catholic Healthcare Partners also spent a relatively large amount on charity care in 2004.
Its charity care of $146.4 million in 2004 was 4.5% of its net revenue. The system is in the midst of raising its total community benefit spending-of which charity care is one element-to 7% of its revenues, Shuttleworth said. "This has been CHP's tradition for years," he said.
The amount of charity care provided by Catholic Health Initiatives grew 42% to $155 million, which represented 2.3% of its revenue, according to its financial statements. "Our community benefit is the real reason for our existence," said Jan Schorr, the system's director of capital finance.
Christus' charity-care total, based on costs and excluding unpaid government-sponsored indigent care, was $107.8 million in the fiscal year ended June 30, 2004. That was 4.3% of its total revenue, according to financial data posted on its Web site. For purposes of this article, charity-care calculations used the cost of charity care to patients, not including bad debt, uncompensated Medicare and Medicaid care, or similar kinds of care.
Christus' spending on charity care and other community benefits was part of a decision by the system's leadership to try to become a premier system in the country, executives said. "We're increasing our care for the poor," said Thomas Royer, president and CEO of Christus.
Christus is trying to get the system into the 90th percentile among its peers, based on four major categories. Christus has set aggressive and measurable goals in all of those categories as part of a five-year drive and hopes to achieve those goals by the middle of 2006, Royer said. Christus aims to spend 10% of its revenue on its total community benefits, of which charity care is a part.
Royer noted that paying close attention is important. "Looking at those measurements on a regular basis is how you ensure you don't sacrifice mission for margin," he said.
Spending the least as a percentage of revenue among the major Catholic systems was CHW. Its charity care as a percentage of revenue was 0.94% in the fiscal year ended June 30, 2004, according to financial statements.
But Tricia Griffin, a spokeswoman for CHW, wrote in an e-mail that its charity care as a percentage of revenue is in line with other systems, particularly because the system uses costs to calculate that number, not charges, as some systems do.
She said CHW has one of the most generous financial-assistance policies in the nation, although it wouldn't be reflected in its charity-care figures.
CHW implemented a change in its billing policies that took effect Jan. 1 and will result in patients with income between 300% and 500% of the federal poverty level receiving care at the average prevailing rate paid by managed-care and commercial insurance companies. CHW also offers bigger discounts or free care to patients with incomes of up to 300% of the poverty level.
Trinity Health, Novi, Mich., and SSM Healthcare also reported charity-care numbers that were both roughly 1% of revenue. Trinity spokesman Kevin Di Cola said that comparing charity care in healthcare can be difficult given the different communities served by a given system. "The landscape is different for every hospital," he said.
SSM's Zimmer said that pinning down a charity-care number for a given system can be difficult. SSM is very conservative about classifying its charity care and will only do so if it can document it. The concern is that some day a federal auditor may ask for documentation of its charity-care numbers, he said.
Some hospitals may include in charity care healthcare that had been cycled through debt collection but was determined by the collection agent to be a charity case, he said. That isn't charity care in SSM's view, he said. Another unmeasured benefit to Catholic health systems' approach is that they are more likely to try to keep hospitals present in areas that need them, such as in rural locations or inner cities, S&P's Zuckerman said.
-with Cinda Becker and Vince Galloro
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