CHI faces financial strains in building national network
Skip to main content
MDHC_Logotype_white
Subscribe
  • My Account
  • Login
  • Subscribe
  • News
    • This Week's News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • People
    • Regional News
    • Digital Edition
    • Operation Warp Speed Dr. Moncef Slaoui, Pfizer Group President Angela Hwang, Moderna CEO Stephane Bancel, CVS Health Executive Vice President Karen Lynch and McKesson CEO Brian Tyler participate in a panel discussion on the COVID-19 vaccine.
      Hospitals, drug companies strive to stand out virtually at JPM
      merrill goozner
      Healthcare groups should end all political donations—permanently
      Sticking to Mediterranean diet is good for the brain
      Joe Biden
      Revamp of the nation's vaccination effort may not be enough
    • Joe Biden
      Revamp of the nation's vaccination effort may not be enough
      COVID-19 hastens hospitals' revenue cycle outsourcing moves
      Operation Warp Speed Dr. Moncef Slaoui, Pfizer Group President Angela Hwang, Moderna CEO Stephane Bancel, CVS Health Executive Vice President Karen Lynch and McKesson CEO Brian Tyler participate in a panel discussion on the COVID-19 vaccine.
      Hospitals, drug companies strive to stand out virtually at JPM
      Dr. Bruce Siegel
      By protecting the healthcare safety net, Biden can put us on the path to a stronger country
    • Trenda Ray
      Q&A: Arkansas nursing leader looking for creative staffing solutions as COVID cases surge
      The Check Up: Trenda Ray
      The Check Up: Trenda Ray of the University of Arkansas for Medical Sciences
      Cook Lydia 4x6_i.jpg
      Northeast Ohio health systems increase community benefit values in 2019
      Vaccine rollout hits snag as health workers balk at shots
    • CMS approves rule forcing insurers to ease prior authorization
      COVID-19 still a big uncertainty for insurers in 2021
      Health insurers' outlook boosted after Dems' Georgia win
      humana_i.jpg
      Humana supports Ohio not-for-profits with $500,000
    • Joe Biden
      Revamp of the nation's vaccination effort may not be enough
      CMS will raise Medicare Advantage plan payments by 4.08% in 2022
      CMS approves rule forcing insurers to ease prior authorization
    • Operation Warp Speed Dr. Moncef Slaoui, Pfizer Group President Angela Hwang, Moderna CEO Stephane Bancel, CVS Health Executive Vice President Karen Lynch and McKesson CEO Brian Tyler participate in a panel discussion on the COVID-19 vaccine.
      Hospitals, drug companies strive to stand out virtually at JPM
      Intermountain, Trinity, Memorial Hermann behind $300M private equity fund
      Operation Warp Speed to bump up McKesson's stock price
      Reporter's notebook: J.P. Morgan's 2021 health conference
    • A man in a room with servers.
      Momentum grows to outsource hospital tech functions in 2021
      5 things to know about Google's $2.1B Fitbit acquisition
      Providence bets on machine-learning, consolidating data centers
      Mental health treatment was most common telehealth service during COVID
    • Sticking to Mediterranean diet is good for the brain
      Chance of COVID-19 triage care looms over Arizona hospitals
      U.S. ramps up vaccinations to get doses to more Americans
      367146427.jpg
      Should businesses mandate that staff get the COVID vaccine?
    • Cone Health CEO, CFO to depart amid pending Sentara merger
      Tower Health's finance chief resigning after years of steep losses
      AHRQ director Gopal Khanna resigns in response to Capitol riot
      Brigham president stepping down after Moderna controversy
    • Midwest
    • Northeast
    • South
    • West
  • Insights
    • ACA 10 Years After
    • Best Practices
    • InDepth Special Reports
    • Innovations
    • The Affordable Care Act after 10 years
    • New care model helps primary-care practices treat obesity
      doctor with patient
      COVID-19 treatment protocol developed in the field helps patients recover
      Rachel Wyatt
      Project to curb pressure injuries in hospitals shows promise
      Yale New Haven's COVID-19 nurse-staffing model has long-term benefits
    • Modern Healthcare InDepth: Breaking the bias that impedes better healthcare
      Videos: Healthcare industry executives describe their encounters with racism
      Michellene Davis
      Healthcare leadership lacks the racial diversity needed to reduce health disparities
      Dr. James Hildreth
      How medical education can help fight racism
      Quotes from rebadged employees
      Outsourcing IT, revenue cycle takes toll on internal culture
    • A woman with a wearable sensor talking to her provider.
      Wearable sensors help diagnose heart rhythm problems in West Virginia
      self service station
      COVID-19 pushes patient expectations toward self-service
      Targeting high-risk cancer patients with genetics
      A nurse holds up a phone with a message to a family member saying surgery has started.
      Texting, tablets help hospitals keep family updated on patient care
  • Transformation
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Highmark Health inks six-year cloud, tech deal with Google
      Study: 1 in 5 patients report discrimination when getting healthcare
      HHS proposes changing HIPAA privacy rules
      Android health records app launches at 230 health systems
    • California hospitals prepare ethical protocol to prioritize lifesaving care
      Amazon, JPMorgan Chase, Berkshire Hathaway disband Haven
      Digital pathways poised to reshape healthcare continuum in 2021
      Healthcare was the hardest hit by supply shortages across all U.S. industries
    • A woman with a wearable sensor talking to her provider.
      Wearable sensors help diagnose heart rhythm problems in West Virginia
      New care model helps primary-care practices treat obesity
      How hospitals are building on COVID-19 telehealth momentum
      Researchers: Hospital price variation exacerbates health inequities
    • MedPAC votes to boost hospital payments, freeze or cut other providers
      Most Next Gen ACOs achieved bonuses in 2019
      Congress recalibrates Medicare Physician Fee Schedule after lobbying
      CMS approves rule to encourage value-based drug pricing
  • Data/Lists
    • Rankings/Lists
    • Interactive Databases
    • Data Points
    • Health Systems Financials
      Executive Compensation
      Physician Compensation
  • Op-Ed
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
    • Wellstar CEO calls adapting for the pandemic her bold move
      Howard P. Kern
      Recognizing the value of telehealth in its infancy
      Dr. Stephen Markovich
      A bold move helped take him from family doctor to OhioHealth CEO
      Dr. Bruce Siegel
      Why taking a hospital not-for-profit was Dr. Bruce Siegel’s boldest move
    • Barry Ostrowsky
      Ending racism is a journey taken together; the starting point must be now
      Laura Lee Hall and Gary Puckrein
      Increased flu vaccination has never been more important for communities of color
      John Daniels Jr.
      Health equity: Making the journey from buzzword to reality
      Mark C. Clement and David Cook
      We all need to 'do something' to fight inequities and get healthcare right, for every patient, every time
    • Dr. Bruce Siegel
      By protecting the healthcare safety net, Biden can put us on the path to a stronger country
      Healing healthcare: some ideas for triage by the new Congress, administration
      Dr. Sachin H. Jain
      Medicare for All? The better route to universal coverage would be Medicare Advantage for All
      Connectivity: a social determinant of health that can exacerbate all the others
    • Letters: Eliminating bias in healthcare needs to be ‘deliberate and organic’
      Letters: Maybe dropping out of ACOs is a good thing for patients
      Letters: White House and Congress share blame for lack of national COVID strategy
      Letters: VA making strides to improve state veterans home inspections
    • Sponsored Content Provided By Optum
      How blockchain could ease frustration with the payment process
      Sponsored Content Provided By Optum
      Three steps to better data-sharing for payer and provider CIOs
      Sponsored Content Provided By Optum
      Reduce total cost of care: 6 reasons why providers and payers should tackle the challenge together
      Sponsored Content Provided By Optum
      Why CIOs went from back-office operators to mission-critical innovators
  • Awards
    • Award Programs
    • Nominate
    • Previous Award Programs
    • Other Award Programs
    • Best Places to Work in Healthcare Logo for Navigation
      Nominations Open - Best Places to Work in Healthcare
      Nominations Open - Health Care Hall of Fame
      Nominations Open - 50 Most Influential Clinical Executives
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Top 25 Minority Leaders
    • Top 25 Women Leaders
    • Excellence in Nursing Awards
    • Design Awards
    • Top 25 COOs in Healthcare
    • 100 Top Hospitals
    • ACHE Awards
  • Events
    • Conferences
    • Galas
    • Webinars
    • COVID-19 Event Tracker
    • Leadership Symposium
    • Healthcare Transformation Summit
    • Women Leaders in Healthcare Conference
    • Workplace of the Future Conference
    • Strategic Marketing Conference
    • Social Determinants of Health Symposium
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Minority Leaders Gala (2022)
    • Top 25 Women Leaders Gala
  • Listen
    • Podcast - Next Up
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
    • Carter Dredge
      Next Up Podcast: Ready, set, innovate! Innovation and disruption in healthcare
      Next Up Podcast: COVID-19, social determinants highlight health inequities — what next?
      Ceci Connolly
      Next Up Podcast: How to navigate the murky post-election waters
      Next Up Podcast: Saving Rural Health
    • An older man wearing a mask receiving a vaccine.
      Beyond the Byline: Verifying information on the chaotic COVID-19 vaccine rollout
      doctor burnout
      Beyond the Byline: How healthcare supply chain struggles contribute to employee burnout
      Beyond the Byline: Covering race and diversity in the healthcare industry
      Beyond the Byline: How telehealth utilization has impacted investor-owned company earnings
    • Leading intention promote diversity and inclusion
      Introducing Healthcare Insider Podcast
    • The Check Up: Trenda Ray
      The Check Up: Trenda Ray of the University of Arkansas for Medical Sciences
      The Check Up: Dr. Kenneth Davis
      The Check Up: Dr. Kenneth Davis of Mount Sinai Health System
      The Check Up: Dr. Thomas McGinn
      The Check Up: Dr. Thomas McGinn of CommonSpirit Health
      The Check Up: Mark Ganz
      The Check Up: Mark Ganz of Cambia Health Solutions
    • Video: Ivana Naeymi Rad of Intelligent Medical Objects
  • MORE +
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Providers
December 20, 2014 12:00 AM

CHI faces financial strains in building national network

Melanie Evans
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    In the ongoing rush of healthcare deals, perhaps no other health system has been as aggressive as Catholic Health Initiatives, which has executed a dozen transactions in the past three years that have expanded its operations into health insurance and established a $1 billion foothold in Texas.

    But the not-for-profit Catholic system's latest financial results show its growth comes with costs beyond the price of buying hospitals and insurers and paying off debt. The system's recent weak financial results underscore the financial risks that can accompany the potential promise of healthcare consolidation.

    In recent deals, CHI has expanded its reach in Kentucky, acquired Nebraska's largest health system, added hospitals in Arkansas, Ohio and Washington state, and entered Texas with the $1.2 billion acquisition of six-hospital St. Luke's Health System. Subsequent deals have swelled its Texas operations to include 13 hospitals. The system became majority owner of a Medicare Advantage plan in early 2013 and acquired a commercial insurer last summer.

    The deals have put financial strain on the system. While revenue has surged with the expansion, growing from $9.8 billion in 2012 to $13.9 billion last year, expenses also have soared. Last week, the system reported a large, unexpected operating loss for its fiscal first quarter, which ended Sept. 30, and officials said they would cut the system's workforce by 2%. Acquisitions largely drove the 11% increase in expenses during the first quarter compared with the same period a year ago, according to financial statements. Revenues grew roughly 8% during the same period.

    CHI's debt soared from $6.1 billion in 2012 to $8.4 billion in 2014. Operating losses in the past two years have replaced profit margins that averaged 3% in the five prior years. The system lost $134.7 million on revenue of $3.2 billion in the first quarter after losing $14 million on revenue of $13.9 billion all of last year. The system's first-quarter loss prompted Standard & Poor's to drop CHI's rating by a notch.

    Fitch Ratings left Catholic Health Initiatives' rating unchanged at A+, but lowered its outlook to negative. Fitch described the growth strategy as “appropriate,” but said the system's weak operating performance could drag down its credit unless executives correct it.

    “It's a big hole to dig out of,” said Liz Sweeney, a director with rating agency Standard & Poor's.

    CHI has invested $1.7 billion to install electronic health records across its growing operations and is expected to spend at least another $800 million on EHRs. Buying and expanding health plans to operate in six states has drained cash from the balance sheet and added new operating expenses. Hiring doctors, other providers and IT professionals has added to labor costs as the system seeks to build networks that reach beyond hospitals to clinics, nursing homes and other settings.

    CHI officials contend the investments and growth are necessary as healthcare reform and continued pressure to slow healthcare spending reshape the marketplace. The investments will create broad regional networks of providers that can be marketed to employers and consumers under the system's own health plans. CHI's health plans have expanded their operations into four more states, with intentions to enter all of the system's major markets.

    Catholic Health Initiatives deals

    2014 November—Sylvania Franciscan Health, six hospitals, based in Toledo, Ohio

    August—St. Alexius Medical Center, three hospitals, based in Bismarck, N.D.

    June—Memorial Health System of East Texas, four hospitals

    May—QualChoice Holdings, a commercial health plan

    April—Mercy Hot Springs in Hot Springs, Ark.

    2013 Harrison Medical Center, two hospitals, Bremerton, Wash.

    St. Luke's Health System, six hospitals, Houston

    Highline Medical Center, two hospitals, Burien, Wash.

    SoundPath Health, Federal Way, Wash.

    Joint venture to operate the University of Louisville Hospital

    2012 Alegent Creighton Health, 11 hospitals in Omaha, Neb.

    Forms KentuckyOne Health, which includes Jewish Hospital & St. Mary's HealthCare and CHI's St. Joseph Health System

    Source: CHI financial statements

    CHI's geographic reach and investment in clinically integrated networks will allow the system to better manage cost and quality of care, officials said in recent statements.

    Reaping the return on those investments will take time, said Dean Swindle, one of the system's presidents and its chief financial officer. “There is a disconnect from the strong value of our enterprise and the short-term operational performance.”

    CHI was formed in the 1996 merger of four Catholic health systems, and it now operates 105 hospitals in 18 states. Roughly one-quarter of those hospitals were added through deals in the past two years, a period that also saw the system rapidly expand its physician hiring. CHI employed 3,400 doctors and other providers at the end of last year, up from 1,400 doctors in 2012. Its home-care arm, boosted by the 2010 acquisition of Consolidated Health Services, has expanded to 89 locations in nine states.

    One drag on CHI's financial performance has been its expansion in Kentucky. Swindle said uncertainty in the market set back integration plans there for roughly a year. In January 2012, CHI's St. Joseph Health System and Jewish Hospital & St. Mary's HealthCare formed KentuckyOne Health. But Tennessee's governor blocked plans to include the University of Louisville Hospital over concerns that an out-of-state company would control a state asset and that the Catholic bishops' Ethical and Religious Directives governing CHI facilities would limit access to certain healthcare services.

    Ultimately, KentuckyOne negotiated a March 2013 deal to operate the University of Louisville Hospital under a joint operating agreement, preserving access to certain reproductive services for women. The system's health IT expansion also added to the Kentucky market's poor performance.

    Elsewhere, health IT expenses contributed to CHI's first-quarter losses. In Washington state, operating performance declined by $60 million because of CHI's investment in new EHR systems and disruption caused by their installation. Poor investment returns also dragged down first-quarter results by $40 million, Swindle said.

    CHI's turnaround plans are not expected to produce a profit for 2015, and Standard & Poor's analysts are not convinced they will succeed with those plans. But Swindle said his system will cut its expenses this fiscal year, including cutting 1,500 jobs through January. The cost-reduction plan, he said, will improve performance by $200 million through the end of the year and, ultimately, will boost operations by $400 million.

    Analysts and consultants agree that CHI's growth strategy could better position the system to compete as payers increasingly turn to value-based contracts tied to meeting cost and quality targets.

    “Today, the goal is not market share, but the number of covered lives that you're responsible for in a given market or region and how integrated your system is,” said David Cyganowski, a managing director at Kaufman Hall, a healthcare advisory firm. “It's no longer sufficient to be a hospital company. You have to be a healthcare company.”

    But Bruce Henderson, leader of the national healthcare practice at consulting firm Navigant, said there's always “execution risk,” meaning there's no guarantee CHI executives can capitalize on consolidation and the associated economies of scale. “It's not just the size, it's what you do with the size when you've gained that scale,” he said.

    Follow Melanie Evans on Twitter: @MHmevans

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    The Check Up: Trenda Ray of the University of Arkansas for Medical Sciences
    The Check Up: Trenda Ray of the University of Arkansas for Medical Sciences
    Q&A: Arkansas nursing leader looking for creative staffing solutions as COVID cases surge
    Q&A: Arkansas nursing leader looking for creative staffing solutions as COVID cases surge
    Sponsored Content
    Get Free Newsletters

    Sign up for free enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today

    The weekly magazine, websites, research and databases provide a powerful and all-encompassing industry presence. We help you make informed business decisions and lead your organizations to success.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS
    • Instagram

    Stay Connected

    Join the conversation with Modern Healthcare through our social media pages

    MDHC_Logotype_white
    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • This Week's News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition
    • Insights
      • ACA 10 Years After
      • Best Practices
      • InDepth Special Reports
      • Innovations
    • Transformation
      • Patients
      • Operations
      • Care Delivery
      • Payment
    • Data/Lists
      • Rankings/Lists
      • Interactive Databases
      • Data Points
    • Op-Ed
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Awards
      • Award Programs
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Top 25 Minority Leaders
        • Top 25 Women Leaders
      • Nominate
      • Previous Award Programs
        • Excellence in Nursing Awards
        • Design Awards
        • Top 25 COOs in Healthcare
      • Other Award Programs
        • 100 Top Hospitals
        • ACHE Awards
    • Events
      • Conferences
        • Leadership Symposium
        • Healthcare Transformation Summit
        • Women Leaders in Healthcare Conference
        • Workplace of the Future Conference
        • Strategic Marketing Conference
        • Social Determinants of Health Symposium
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Minority Leaders Gala (2022)
        • Top 25 Women Leaders Gala
      • Webinars
      • COVID-19 Event Tracker
    • Listen
      • Podcast - Next Up
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • MORE +
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing