The Archdiocese of Newark, N.J., last week became the second diocese since February to unveil plans to exit the acute-care hospital business.
Executives announced June 11 that Catholic Health East, based in Newtown Square, Pa., signed a nonbinding letter of intent to acquire two of three struggling Newark hospitals owned by the dioceses Cathedral Healthcare System. The deal comes after the Boston Archdiocese entered into talks in February with St. Louis-based Ascension Health, the largest private not-for-profit health system, to divest six-hospital Caritas Christi Health Care (Feb. 12, p. 14).
If successful, the transactions would whittle the already-thin ranks of U.S. health systems owned by Roman Catholic dioceses. The U.S. Conference of Catholic Bishops lists 195 Roman Catholic dioceses in the U.S.; 10 of which own health systems, according to the Catholic Health Association, a St. Louis-based trade group. Catholic hospitals represent roughly 12.5% of U.S. community hospitals, American Hospital Association statistics showed in 2005, the most recent year for which figures are available.
Catholic Health East, a 23-hospital Catholic system, is seeking to acquire Cathedrals 223-bed St. Michaels Medical Center and 103-bed St. James Hospital. Not included in the deal is 175-bed Columbus Hospital.
Church leaders in Newark and Boston gave strikingly similar explanations for seeking out new owners for their hospitals. Systems involved in both deals have reported mixed financial results in recent years. Officials cited their prospective Catholic suitors as necessary to strengthen operations.
The archbishop of Newark, the Most Rev. John Myers, said in a written statement that he hoped the deal will help secure the future of Catholic healthcare in greater Newark.
Cardinal Sean Patrick OMalley, Bostons archbishop, in a February written statement said Ascension has both the values consistent with those of the Archdiocese of Boston and Caritas Christi and the financial strength to support our healthcare system. Terrence Donilon, a spokesman for the Boston Archdiocese, said talks between Caritas Christi and Ascension are ongoing and declined to comment. For Ascension, acquiring Caritas Christi would mark the 61-hospital systems entry into Massachusetts and give Ascension executives exposure to the states universal-coverage effort.
Both diocesan-owned systems have been suffering financially. Cathedral Health Services, which includes St. Michaels and St. James, saw operations plummet in 2004, the most recent year for which records are available on public Web sites. In 2004, CHS reported a $10.9 million net loss on revenue of $284.4 million; thats compared with net income of $22.7 million on revenue of $299.2 million in 2002.
Caritas Christi emerged from seven years of red ink in 2005, in part because of significant tax subsidies for its 186-bed Caritas Carney Hospital in Dorchester, Mass. Improved performance continued for the fiscal year ended Sept. 30, 2006, when Caritas Christi reported operating income of $22.7 million on revenue of $1.22 billion.
For the Newark Archdiocese, Cathedrals losses strained the churchs limited resources, which also support its parishes and social services, said Jim Goodness, a spokesman for the archdiocese. Divesting its hospitals to a Catholic system would allow the diocese to prioritize its funding for remaining outreach and services while continuing faith-based healthcare within its borders, he said. The dollar can only be stretched so far, Goodness said.
Columbus Hospital, which is not included in the Catholic Health East negotiations, saw its finances sink from black to red in 2003 and losses have since continued to mount. Columbus lost $19.3 million between 2003 and 2005, including an $8.5 million loss off revenue of $86.5 million in 2005, the most recent year for which figures are publicly available.
Scott Share, a Catholic Health East spokesman, said the system opted to exclude Columbus from its offer because executives think theres a better chance of success for the entire system without it. These are three challenged facilities, Share said. Taking on three would be a bigger challenge.
Henry Amoroso, outgoing president and chief executive officer of Catholic Health & Human Services Corp., the Newark Archdioceses healthcare and social services arm, said Cathedral is considering other possible deals to divest Columbus. Amorosos acceptance of the job as president and CEO of St. Vincent Catholic Medical Centers was announced days after the Cathedral-Catholic Health East deal was unveiled (See regional news, p. 19).
State healthcare reform also factored into the archdioceses decision. In New Jersey, the states effort to overhaul its hospital market, the Commission on Rationalizing New Jerseys Health Care Resources, prompted Cathedrals executives late last year to closely examine Newarks challenged healthcare market, Amoroso said.
He said Cathedrals analysis found excess capacity and duplicate services in Newark. But the archdiocese lacked the necessary capital to radically restructure its foundering healthcare services, so Cathedral began a search for a prospective partner with a Catholic affiliation and financial strength.
Catholic Health East had both, but any deal also hinges on significant state aid for hospital reorganization, Amoroso said. Both Amoroso and Share declined to say how much support would be required to close the deal or how the state would provide aid. But Amoroso said Cathedrals executives have informed New Jersey policy planners of potential changes to the system under new ownership. It wont look like three hospitals anymore, Amoroso said. Theres general agreement that the direction were going in is not only bold, but appropriate.