Indiana University Health, a 14-hospital system based in Indianapolis, pruned its hospital portfolio as it prepares for a $1 billion construction project at one of its downtown health campuses.
IU Health divested Goshen (Ind.) Health in December and an 80% interest in its hospital in LaPorte and Starke Hospital in Knox, Ind. last March.
Goshen paid IU Health $20 million to divorce. But IU Health took a $295 million non-operating impairment charge against the loss of those assets for 2016, IU Health said last week in its audited 2016 financial filing.
In the earlier deal, investor-owned Community Health Systems paid $96.5 million for 80% of the LaPorte and Starke hospitals—money that went into a charitable foundation rather than IU Health. IU Health booked in 2016 a non-operating charge of $156.8 million in the transaction.
In a statement, IU Health said the three divested hospitals are located in northern Indiana. Patients at those hospitals needing quaternary care are often sent to facilities in Chicago and Michigan rather than Indianapolis, CEO Dennis Murphy said during a recent interview with the Scottsdale Institute.
IU Health also focused its capital and growth strategy further downstate rather than spend money to build out clinics and ambulatory sites to offer lower-cost care settings for patients, Murphy said. “We wanted to concentrate capital, management time and effort in areas where we could really improve the health of populations,” he said.
The system is the main hospital partner of the nation's largest medical school, the Indiana University School of Medicine, also based in Indianapolis.
The divestiture impairment contributed significantly to IU Health posting a precipitous drop in net surplus in 2016, down about 58%. The system reported a net surplus of $260 million on revenue of $6.2 billion in 2016 compared with a net surplus of $612.7 million on revenue of $6.1 billion in 2015.
IU Health's operating income also fell last year to $548 million vs. $781.8 million the prior year, down about 30%.
The divestitures were only a part of a big transition taking place at IU Health. In May, long-time CEO Dan Evans retired. The 67-year-old Evans led the growth of IU Health from its three hospitals in downtown Indianapolis to the current 14.
He was succeeded by Murphy, who immediately inherited a huge building project that has caused some concerns among IU Health employees in downtown Indianapolis.
IU Health has announced a $1 billion plan to replace its aging 331-bed Indiana University Hospital and 625-bed Methodist Hospital, located about a mile apart, with a combined new hospital on the Methodist campus. The Riley Hospital for Children at IU Health is adjacent to the University Hospital campus.
Planning is underway for the replacement hospital, which won't open until at least 2020. Meantime, the system is looking into repurposing the University Hospital campus for ambulatory services, IU Health said in its annual financial report.
The system also is planning to replace its 364-bed IU Health Bloomington Hospital in the coming years on the campus of Indiana University. No capital budget has been set for the project, the financial disclosure noted.
IU Health also agreed effective June 1, to lease for $1 million annually the 25-bed Frankfort (Ind.) Hospital, a critical-access hospital located between Indianapolis and Lafayette, Ind. It's a five-year lease.