In the face of large operating deficits and huge investment losses, Catholic Health Initiatives has tightened its belt and is divesting itself of several hospitals. CHI officials say it's just following standard operating procedures, and one expert not only agrees but also says CHI is following a pattern that more systems are likely to mimic in the near future.
Shifts at CHI
Belt-tightening, divestitures could be trend: expert
According to its most recent quarterly report, Denver-based CHI lost $931.2 million through its investments and another $148.1 million through interest-rate swap agreements. The 60-hospital system, however, points to the $10.8 million it regained through bond retirements and claims the negative ledger amount created by the interest swap deal may only be temporary.
Joyce Ross, a CHI spokeswoman, described the interest-rate swaps as a long-term hedge that allows CHI to pay a fixed rate for years to come. “The reason they are ‘negative' is that interest rates are currently very low,” Ross said in an e-mail. “As interest rates rise, they will become positive. In other words, it's not an actual loss.”
What is actual, however, is that for the nine-month period ended March 31, operating income was down by $108 million having fallen to $26.1 million from $134.1 million for the same period in the previous fiscal year, according to CHI's quarterly report dated June 25.
Other concurrent events keeping CHI in the news include: the resignation of Colleen Blye, CHI's executive vice president and chief financial officer, effective Oct. 2; CHI's announcement that it would “transfer sponsorship of” one Idaho and two Oregon hospitals to Novi, Mich.-based Trinity Health; the possible sale of a Missouri hospital to Chesterfield, Mo.-based Sisters of Mercy Health System; and the decision to close a Kansas hospital despite community opposition.
Blye has been with CHI since the system was launched in 1996. She was named interim senior vice president and CFO in 2004 and then took over the position in 2005. Last year, she was promoted to executive vice president, finance and integrated services. The promotion to the President's Council, however, included a requirement that she live near Denver. A Philadelphia resident, Blye decided relocation “was not in her best interest at this time.”
“The resignation of Colleen Blye, CHI's chief financial officer, has nothing to do with the results of the investment portfolio,” Ross' e-mail said. “She has graciously agreed to remain with CHI through Jan. 2 to assist with the transition.”
The CHI hospitals included in the Trinity deal include 118-bed Mercy Medical Center in Nampa, Idaho; 49-bed Holy Rosary Medical Center, Ontario, Ore.; and 25-bed St. Elizabeth Health Services, Baker City, Ore. (Sept. 7, p. 12). In May, CHI and Sisters of Mercy had signed a letter of intent to explore the sale of CHI's 357-bed
St. John's Regional Medical Center in Joplin, Mo. (May 18, p. 20). And CHI has run into resistance with its plan to shut down 25-bed St. Joseph Memorial Hospital in Larned, Kan., a critical-access hospital and skilled-nursing unit (Aug. 31, p. 20).
“The transfer of sponsorship at Joplin and the discussions with Trinity about the transfer of three CHI facilities represent an effort to create and strengthen a regional health ministry in those areas,” Ross said. “The changes will provide the communities with integrated, coordinated healthcare services from a Catholic healthcare ministry. Those decisions … are unrelated to a market downturn.” Ross added that CHI is always looking for ways to strengthen the Catholic healthcare ministry, and this includes exploring “partnerships, collaborations and other changes.”
“CHI is not unique in doing this—it's good stewardship of resources,” Ross said.
Steve Valentine, president of the Camden Group, a Los Angeles-based healthcare management consultant, said a lot of systems are doing the same thing and more will follow. “What they are doing is not uncommon,” Valentine said. “What they are doing is what you're going to see when healthcare reform comes: They're going to have to really focus investment dollars in fewer markets where they can concentrate resources. ... You will see more of this activity in the future. Consolidation of hospitals and systems will be concentrating on fewer markets.”
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