CHI weathers plummeting operations, DOJ settlement in Q1

Catholic Health Initiatives lost more on its operations in the quarter that ended Sept. 30 than it did in the entire previous year, according to the system's just-released financial statements.

CHI also disclosed that it has reached a tentative agreement with the U.S. Justice Department to resolve allegations stemming from a nationwide investigation of Medicare claims for implantable cardiac devices.

Earlier this week the Englewood, Colo.-based health system—one of the largest not-for-profit providers in the U.S.—said it would cut 1,500 jobs in the coming weeks to make up for larger-than-expected losses.

In statements released on Friday for the first quarter of its fiscal 2015, CHI reported an operating loss of $134.7 million on revenue of $3.2 billion. That poor performance follows an operating loss of $14 million on $12.4 billion in revenue in fiscal 2014.

The system's operating revenue increased by 8.1% from the same quarter a year ago, but expenses climbed 11%, which CHI said in its financial statement was “primarily attributable to recently completed acquisitions.” The system has been an aggressive buyer in the last two years, expanding its geographic reach and diversifying its operations from hospital and ambulatory care into health insurance.

The announced job cuts, which affect roughly 2% of the multistate health system's workforce, are one strategy the system is using to reduce its operating costs and improve its finances, officials said in a statement.

“CHI is addressing the declines in profitability through focused clinical and operational initiatives, a targeted plan for growth in key markets and significant improvements in revenue-cycle operations,” the statement said. “In addition, CHI has launched a comprehensive program to reduce costs across the enterprise of 105 hospitals and hundreds of other healthcare facilities in 18 states.”

The first quarter loss is a dramatic swing from its performance a year ago, when Catholic Health Initiatives reported income of $182.4 million on revenue of $3 billion.

The system cited several reasons for the quarter's losses. “Like many other health systems, Catholic Health Initiatives faces a number of challenges—including shifting utilization patterns and the need for costly investments in people, facilities and equipment to adapt to the ever-changing environment in the U.S. health care system,” according to a CHI statement. “These factors and others, including a temporary downturn in investments, resulted in a loss in the first quarter of the 2015 fiscal year.”

CHI also said that it reached an agreement with the Department of Justice on Dec. 1 concerning its investigation of Medicare claims for implantable cardiac devices. The report did not disclose the size of the settlement or describe the specific allegations.

A CHI spokesman said Friday afternoon that the system would not reveal the settlement amount, but provided a statement regarding its agreement with the DOJ.

“CHI, which conducted a comprehensive review of its processes related to these devices, has instituted new policies and provided extensive education across the system,” CHI said in the statement. “CHI has worked closely with the government to resolve the claims identified as part of the investigation, and has reached an agreement with the government to settle these claims. CHI denies any wrongdoing and reached this settlement without any admission of wrongdoing in order to avoid the delay, uncertainty, inconvenience and expense of protracted litigation.”

The settlement is at least the third so far in the investigation which may involve hundreds of hospitals.

The first settlement in the investigation came in September 2013 when the now-defunct MedCath Corp. agreed to pay the government $6.1 million and did not admit any wrongdoing, illegal conduct or liability. That settlement came over allegations that six MedCath hospitals billed Medicare for cardioverter defibrillators that were allegedly implanted in patients outside of Medicare coverage guidelines, according to a MedCath statement at the time.

Recently, Irvine, Calif.-based St. Joseph Health also noted in a bondholder disclosure that it had agreed to settle with the government, without admitting any liability. St. Joseph expected to finalize its settlement in December, according to the disclosure. St. Joseph, like CHI, did not describe the size of the settlement or specific allegations, and a spokeswoman for the system declined to comment on the case earlier this month.

The implantable cardiac devices cost $40,000 or more, and their use increased after Medicare changed its rules in January 2005 allowing patients to receive them for primary prevention of arrhythmia. The rules, however, said the devices cannot be implanted within 40 days of a heart attack or 90 days of bypass surgery, but many physicians have elected to implant them outside of those restrictions.

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