Last year was a bad one for Catholic Health Initiatives.
For the first time since its inception in 1996, the Denver-based system lost money, posting a $53.8 million loss for the fiscal year ended June 30, 1999.
Losing money is always disconcerting, but the loss was particularly stunning for CHI, which posted a profit of more than $237 million the previous fiscal year.
While Medicare reductions brought on by the Balanced Budget Act of 1997 were 'significant' for CHI, the system had to endure other blows to its bottom line, says Sister Geraldine Hoyler, CHI's senior vice president of finance and treasury.
For example, Englewood, Colo.-based Centura Health, a joint operating company in which CHI has a majority interest, had to assume liabilities of $40 million because of a loan guarantee to a failed physician-owned hospital in Denver.
The liability for the loan was part of $100 million in restructuring and impairment charges that CHI took last year, also in part because of a write-down of some money-losing facilities.
Despite last year's losses, it's not all doom and gloom for the Roman Catholic system, which has 70 hospitals in 22 states.
In fact, things are starting to look up.
'Several markets that experienced significant operating losses in fiscal year 1999 have demonstrated successful turnaround efforts in the first six months of fiscal year 2000, and are expected to meet or exceed their budget targets for fiscal year 2000,' according to a recent bond-rating report from New York-based Moody's Investors Service.
Moody's credits CHI with renegotiating payer contracts, dumping ownership of physician practices and controlling costs.
But the system isn't out of the woods yet.
'A return to historical levels of profitability is not expected in the very near term,' the Moody's report predicts.
The Moody's analysis and reports from other bond-rating agencies were released in advance of a $350 million bond offering CHI expected to take place last week.
CHI will use the money to reimburse its cash position for prior capital expenditures and to fund new ones.
Among the markets where CHI is seeing a turnaround is at nine-hospital Centura Health in CHI's home state of Colorado, Moody's says.
Centura reported an $8.3 million operating profit for the first six months of this fiscal year, following total operating losses of almost $22 million for all of fiscal 1999, the rating agency says.
The system's total net losses last year topped $53 million, says Centura President and Chief Executive Officer Joseph Swedish.
Centura is a 4-year-old joint operating company created by CHI and PorterCare Adventist Health System in Denver. Its nine hospitals are located throughout Colorado. CHI has a 70% asset interest in the company.
Swedish says some of the significant undertakings at Centura aimed at turning around its operating performance are:
* Getting out of capitated managed-care contracts.
* Divesting physician practices. Last year, the practices accounted for about $25 million of Centura's losses, Swedish says.
* Improving collections and operations and maintaining a reasonable level of expenses.
* Recruiting new leadership and decentralizing administrative services.
Working in Centura's favor has been a substantial growth in volume. Swedish says acute-care admissions are up about 3%.
'We have focused on getting back to basics,' Swedish says.
Other markets where Moody's sees CHI experiencing some turnaround are Joplin, Mo.; Wilmington, Del.; and Cincinnati.
Trouble spots still remain in Albuquerque; Des Moines, Iowa; and Little Rock, Ark.
Typically, geographic diversity helps to shield a system's bottom line. That's because if one market tanks, profitable facilities elsewhere help make up the loss.
But last year, a number of CHI's markets suffered, and consequently so did the system's total bottom line.
'You would not expect so many markets to be negatively impacted at the same time,' says Kay Sifferman, a Moody's analyst.
According to a ratings report from New York-based Fitch IBCA, CHI had 17 underperforming markets in fiscal 1999 with losses totaling $155 million.
Despite these financially trying times, CHI doesn't plan to break apart like other systems around the country heading for divorce.
'CHI was never formed predominantly from a financial perspective,' Hoyler says. 'It was always formed for continuing the viability of the Catholic health ministry into the 21st century.'
