Already a giant, Ascension is poised to close a string of deals that credit analysts say will leave the Catholic hospital operator stronger, despite the likelihood Ascension will be forced to quickly absorb at least a dozen hospitals and enter Massachusetts highly competitive market.
Rapid growth can leave hospital buyers bloated and overextended, but Ascensions size and its past success taking on hospitals make it a good bet that management can handle the hefty crop of acquisitions, said John Wells, an analyst who follows Ascension for Fitch Ratings. In our initial estimation, these transactions wont be dilutive and, in large part, could bewould bepositive, Wells said.
Since November 2006, Ascension officials have unveiled deals that will add 12 acute-care hospitals in Kansas, Massachusetts and Wisconsin to its portfolio. The system is also in talks to snap up three-hospital Eastern Health System in Birmingham, Ala., by mid-2007. If successful, the deals will further diversify Ascensions geographic reach and strengthen its hold in Milwaukee and Birmingham, where deals will give its hospitals the No. 2 and No. 1 market share, respectively.
In late November, Ascension publicized plans to co-own four-hospital Via Christi Health System through a merger of assets among seven religious congregations, including three orders that sponsor Ascension and Via Christi. Via Christi, which reported 2006 operating income of $39.8 million on operating revenue of $1.19 billion, also owns an insurer, two specialty hospitals and a dozen long-term-care and assisted-living facilities.
Two months later, the Catholic system announced a letter of intent to acquire six-hospital Caritas Christi Health Care from the Archdiocese of Boston. The deal, if successful, would mark Ascensions entry into Massachusetts with a six-hospital operation that reported operating income of $27.7 million on revenue of $1.22 billion in the fiscal year ended Sept. 30, 2006, the most recent figures publicly available. And in early April, Ascension said its three-hospital Milwaukee-based system, Columbia St. Marys, had entered negotiations to merge finances, governance and operations with larger rival Froedtert & Community Health, which reported fiscal 2006 net income of $56.5 million off revenue of $813.5 million, according to unaudited financial statements. Columbia St. Marys reported fiscal 2006 net income of $45 million off revenue of $607.6 million, according to a Columbia spokeswoman (April 9, p. 16).
The deal, still in talks, would significantly strengthen Columbia St. Marys position in a competitive market that Ascension has targeted for growth, according to credit analysts.
Meanwhile, officials announced in mid-April a letter of intent to sell Riverview in Detroit after selling two hospitals in 2006.
News of Riverview Hospitals sale met stiff opposition from St. Johns competitors. One filed a lawsuit to halt the sale and a second contends converting the Detroit hospital to a cancer center threatens to overextend the citys remaining hospitals, particularly its emergency rooms. In a lawsuit filed earlier this month, seven-hospital Detroit Medical Center argued Karmanos bid for St. Johns hospital violates the cancer centers 2005 agreement to expand within DMC, said Benjamin Carter, executive vice president and chief operating officer of DMC.
Nancy Schlichting, president and CEO of Henry Ford Health System, Detroit, said the deal raises troubling questions about access to emergency services. The four-hospital systems 722-bed Henry Ford Hospital in Detroit regularly operates at capacity. Its busy emergency room will not be able to meet demand for patients displaced should Riverview Hospital close, she said. Schlichting said the citys health systems must balance their commitment to Detroits vulnerable residents with financial pressures by leveraging their diverse assets and size. Thats why systems are important, she said.
Ascensions Joseph argued Riverview Hospitals closure wont curb access in Detroit, though care may be less convenient, and will check the financial drain Riverviews losses put on
St. Johns preventive and primary care. In the fiscal year ended June 30, 2006, Riverview lost
$9 million off revenue of $140 million. The hospital is projected to lose $22 million off $137 million in 2007, according to a St. John spokeswoman. The systems finances have struggled as Riverview has foundered. St. John reported operating income of $50 million off revenue of $1.87 billion last year. Operating income is expected to drop to $20 million off operating revenue of $1.92 billion, according to the system.
Joseph rejected concerns that one less emergency room in east Detroit will strain the remaining capacity. I dont see the issue in that, he said. St. John will keep Riverviews ER open for a year, he said, and build an urgent-care center near the closed campus to meet neighborhood needs. Renovations totaling $150 million at 589-bed St. John Hospital and Medical Center, seven miles east of Riverview, include doubling the tertiary-care centers emergency department.
In November, Ascension sold St. Joseph Hospital, Augusta, Ga., to for-profit Triad Hospitals, Plano, Texas, for $30 million. The 129-bed hospital faced possible closure as far back as December 2002 when St. Joseph faced serious financial issues, increasing operational difficulties and problems unique to its market, which has several competing hospitals, Ascension wrote Georgias attorney general.
St. Joseph, Ascensions only acute-care hospital in Georgia, barely broke even in the fiscal year ended June 30, 2005, according to the most recent data publicly available. The modest triumphgains of $863,000 off revenue of $80.4 millionfollowed years of red ink. St. Joseph lost $1.4 million off $76.5 million in 2004; another $1.4 million off $72.5 million in 2003; and $2 million off $68.3 million in 2002.
In June 2006, Ascension sold 51-bed DeKalb Community Hospital, Smithville, Tenn., to Cannon County Hospital, Nashville, four years after acquiring Nashville-based Baptist Hospital System in 2002, which owned DeKalb and two other hospitals, in addition to a joint stake with Ascensions St. Thomas Health Services in 199-bed Middle Tennessee Medical Center, Murfreesboro.
Ascensions mission drives its operations and financing strategies, not vice versa, its executives said.
Even so, Ascensions efforts to tackle preventable deaths and access for the uninsured have a business case. The system has pledged to eliminate avoidable injuries and deaths by July 2008 and guarantee access to everyone in all of its markets by 2020.
The world right now is divided into two groups of people, argued David Pryor, Ascensions senior vice president for clinical excellence. Some healthcare executives believe in a business case for capital-intensive quality improvements, others dont. I work in an organization that believes its there, he said, though an unfavorable bottom-line analysis wont prevent Ascension from adopting necessary safety standards.
In December 2003, Ascension launched a five-year effort to prevent an estimated 900 deaths annually that its clinicians believed were avoidable by tackling key complications and errors. As of December 2006, efforts to reduce birth trauma injuries, patient falls, hospital-acquired infections, pressure ulcers, surgical complications and adverse drug events as well as meet established safety goals have prevented 2,000 deaths in total, a system spokeswoman said.
But not without cost. To tackle severe pressure ulcers, Ascension began a systemwide push to replace bed frames and surfaces, including those in ERs, at a cost of $50 million. An analysis linked severe pressure ulcers with patients who remained in ERs when capacity constraints prevented doctors from transferring them elsewhere in the hospital. Pryor did not provide figures but said Ascension executives built a business case for the bed overhaul by factoring in costs of extended hospital stays and nursing injury associated with pressure ulcers.
Meanwhile, improved access to care for the uninsured will curb costs by cutting down unnecessary ER visits, hospital admissions or duplicate laboratory and diagnostic tests by allowing patients and physicians to treat disease early and track care, Ascensions executives said. Pilot programs under way in 21 cities, including New Orleans, Flint, Mich., and Jacksonville, Fla., measure progress by tracking admissions and enrollment in public insurance plans or privately funded aid programs.
Public and private backing, particularly from private physicians, is central to the access initiatives success, said Susan Nestor Levy, Ascensions senior vice president of advocacy and external relations. The system has made progress in drumming up public support and getting doctors onboard. In Austin, Texas, Ascension backed a successful 2004 initiative to create a hospital tax district to raise roughly $5 million annually to improve access. Some specialty and primary-care doctors have signed on to accept a limited number of uninsured as patients. Combined, the 21 pilots have scored $47 million from HHS to target access since 2000. Ascension contributed another $7 million.
Ascensions governing board voted last December to tie executives bonus pay to a 2009 deadline for every hospital to draft a five-step plan for guaranteeing access. Among the five steps: Executives must find adequate and sustainable financing for access initiatives. Currently, hospital and system executives get paid a bonus for yearly increases in community benefits. Ascension declined to say what percentage of executives pay is tied to community benefit performance or how that performance is measured.