Struggling Presence Health makes a move to survive

Presence Health, the largest Catholic health system in Illinois, is selling two downstate hospitals to OSF HealthCare.

Peoria-based OSF, a sprawling 11-hospital system, plans to buy Presence Covenant Medical Center in Urbana and Presence United Samaritans Medical Center in Danville, according to a statement today from the health systems. The deal is expected to close in first-quarter 2018, though it must be approved by state regulators.

Chicago-based Presence would not detail terms of the agreement, and a spokeswoman for OSF did not immediately comment on how much OSF planned to pay for the hospitals.

The announcement comes as Presence CEO Mike Englehart works to turn around the finances of Presence, a 12-hospital system (including two hospitals that share one campus) he took over in late 2015. He soon discovered a more than $180 million operating loss. Presence has shed workers and named new leaders at some hospitals.

Presence ended 2016 with $2.71 billion in total revenue and a $40 million operating loss, exceeding the system's goals, according to an audited financial statement. Presence spent $31.5 million in turnaround expenses in 2016.

OSF had $2.42 billion in total revenue in 2016 and a $56.6 million profit, an audited financial statement shows.

DEEP-POCKETED RIVALS

Presence competes with rivals that have deeper pockets and more updated facilities that woo patients and doctors alike. The network has a 10% market share for inpatient admissions in fiercely competitive Chicago, but captures about one-third of the market in central Illinois.

"For Presence Health, this opportunity allows us to focus on delivering high-quality patient care in northern Illinois, while supporting our long-term sustainability to continue our mission," Englehart said in the statement.

A deal with OSF also preserves the Catholic identity of the two downstate Presence hospitals.

Said Sister Judith Ann Duvall, chairwoman of the OSF HealthCare board, in the statement: "This summer marks 140 years since the founding of our healthcare ministry. . . .I can think of no more joyous way to celebrate the occasion than by extending the OSF HealthCare mission to Urbana and Danville. This transfer of ownership ensures high-quality Catholic hospital services will continue in these communities we have been called to serve."

It's not clear why Presence chose those two downstate hospitals to sell, but the system noted in a fact sheet that Presence determined in early 2017 that OSF was "in a unique position" to serve the Urbana and Danville communities. Presence chose OSF partly because of its values and Catholic healthcare mission. Both communities also are adjacent to many OSF health care facilities.

EMPTY TREND

Presence Covenant employs more than 700 people; Presence United, more than 550. Employees will not have to reapply for their jobs.

Both facilities share a trend happening at hospitals nationwide: emptying out.

Presence Covenant had 181 patient beds staffed by doctors, nurses and other healthcare providers in 2015. Just 58% of the most common beds for patients, known as medical-surgical beds, were occupied at the busiest time of the year, according to a Crain's analysis of the most recent state records. Overall, about half of the hospital's total beds were empty in 2015.

Presence United had similar results, records show.

Hospitalizations are decreasing nationwide for a variety of reasons. Insurers steer patients toward cheaper outpatient clinics, and they pay doctors to focus on prevention so people don't end up in ERs or hospitals in the first place. Plus, technology has advanced so much that many surgeries can be done in outpatient surgery centers.

"Struggling Presence Health makes a move to survive" originally appeared in Crain's Chicago Business.