Last week the community learned
that exterior work on the Harrison Medical Center expansion project in
Silverdale will slow down for an unspecified period of time and interior work
will temporarily be deferred. In the face of reduced revenue due to increasing
labor costs coupled with lower insurance reimbursement, CHI Franciscan likely
had no other choice. The parent corporation, Colorado-based Catholic
Health Initiatives, has made budget adjustments in order to remain financially
solvent.
CHI Franciscan is not alone in their
struggle for solvency. Moody's Investors Service recently issued a
negative outlook on the nonprofit healthcare and hospital sector for 2019. The
change in rating from "stable" to "negative" reflects
Moody's prediction that operating cash flow will either remain flat or decline
by as much as 1 percent and bad debt will increase this year. Moody’s
predicts expenses will outpace revenue due to workforce issues, including the
ongoing need for temporary nurses and continued recruitment of employed
physicians.
Nonprofit hospitals, in general, are
facing challenging times. And that challenge is going to reverberate
through our county, whether that means a major facility on a new construction
timeline or further corporate creativity to reduce health care costs.
To that end, a year ago Catholic
Health Initiatives and Dignity Health signed a formal agreement to join
“ministries” and create a $28 billion health system giant with more than 700
facilities across 28 states. The merger is expected to be finalized by the end
of the year. After receiving approval from the Federal Trade Commission
and the Vatican, the newly combined organization — which becomes the largest
non-profit hospital system in the country — will be known as CommonSpirit
Health.
The new moniker reflects both the
entity’s faith-based mission and the essence of those providing care to
patients. According to CHI CEO Kevin Lofton, “We appreciate how the
manifestation of the Spirit is woven into so many messages – God’s gift of
compassion, the calling to heal others and the serving the common good. Each
comes together and is reflected in just one powerful word, CommonSpirit.”
While “common” doesn’t seem all that
powerful to me, the fundamental question is whether merging two non-profit
healthcare giants will boost the financial outlook for the newly combined
corporation.
At one time, Dignity executives had
expressed concern over CHI’s financial performance and heavy debt load. But
there was little reticence in the remarks of CEO Lloyd Dean, who recently said,
“we remain steadfast in the belief that we can deliver a bold new health care
enterprise of the future through our alignment with Catholic Healthcare
Initiatives.”
His confidence in mergers may be based
on financial statements, though revenue and expense isn’t always a safe
forecast of what’s coming next.
For example, acute admissions and
outpatient visits declined 5 percent from 2017 to 2018 for CHI, yet the
company’s operating loss fell during that time period, from $593 million to
$276 million. It stands to reason in the face of reduced revenue, they
accomplished this feat by cutting costs, including labor, benefits, supplies
and other overhead expenditures.
Dignity Health, a San Francisco-based
system, looks formidable on paper, posting a net income of $988 million in
fiscal year 2018, up from $425 million in 2017. However, these numbers
were boosted by a backlog in the California Provider Fees, which generated $447
million for 2018 and an additional $217 million in “catch-up” revenue from
2017. A quirky twist via the U.S. HealthWorks merger, an urgent care and
occupational medicine subsidiary, garnered a one-time cash influx of $500
million plus a $120 million bonus on top of that.
Sounds like a solid financial base for
the new company. However, the regulatory burden of hospital consolidation can
be costly and can leave open questions like the one Kitsap consumers may
rightfully be asking about Harrison’s future.
The California Attorney General made
merger approval contingent on a number of charity care requirements, including
creation of a program for homeless healthcare initiative and implementing a 100
percent discount to patients who earn up to 250 percent of the federal poverty
level. CommonSpirit Health will invest $20 million over six years toward the homeless
healthcare program alone, that will serve 30 communities in California where
Dignity Health operates hospitals. How will these financial commitments in
California affect future decisions nationwide if expenses must be reduced?
Loften, the CHI CEO, recently told the
Denver Business Journal, “If we do our jobs right, we won’t look like a
hospital company. We still will have hospitals, but there will be fewer people
in them.” But CommonSpirit Health is a hospital company, at least, for
now.
There’s little doubt Harrison and CHI
will retain their footprint in Kitsap, but hospital mergers around the country
haven’t always demonstrated that having more facilities under a common name
bolsters the bottom line. Who knows what that will mean for a patient’s
healthcare options in Kitsap County into the future, and for the health of our
lone hospital.
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