Hugh nonprofit system feels pressure to cut costs, merge and get bigger

National Catholic Reporter, June 16, 1995 by Arthur Jones

WASHINGTON -- The April 20 announcement that three major Catholic health care systems would consolidate into one megasystem was not a case of the big getting bigger. The consolidation, expected to be completed later this year, of Catholic Health Corp. of Omaha, Neb.; the Franciscan Health System of Aston, Pa.; and the Sisters of Charity Health Care Systems of Cincinnati is a case of the huge becoming enormous.

The combined annual revenues of those three Catholic entities -- $4 billion -- exceeds the annual revenues of such U.S. corporate giants as toymaker Mattel, media giant Gannett Co. and for-profit health maintenance organization Humana. The merger is just one more example of the widespread U.S. Catholic health care industry achieving a scale of income and profits otherwise reserved to multinational corporations.

The combined Catholic systems' $32 billion in annual revenues approaches the yearly gross domestic product of Ireland ($37 billion). The combined revenues of the top 10 Catholic health systems exceed $11 billion dollars, or more than twice the GDP of E1 Salvador ($5.1 billion). The 560 Catholic acute care hospitals make up 10 percent of the nation's total and contain 14 percent of the nation's acute care beds.

The Catholic presence in the nursing home and residential care field is equally impressive. But as hospitals combine at the local level and competition for paying patients increases, Catholic health care is under stress. And this, the new merger managers contend, is why they are consolidating.

A. Diane Moeller, Catholic Health Corp. chief executive officer, told NCR, "We, as three system CEOs, came together to talk about: how do you stay relevant -- relevant in order to maintain the service to our communities and relevant to continue a Catholic ministry?

"More important, under this new kind of organization we see a broadening of the Catholic health ministry, which right now is quite facility-oriented, to where care is really given ... out in the community and in the homes.

"We think that to be viable, Catholic health ministry is going to have to direct its attention as much on the health of the community as the illness of the community."

The three systems will save money by consolidating three managements, three insurance programs and three corporate debt-management programs into one.

Why the push for size? Catholic hospitals can be pushed out of the local market by competition. On Aug. 31, 1994, speaking to Chicago-area Catholic hospital CEOs and sponsors, Chicago Cardinal Joseph Bernardin strongly urged his 20 area hospitals to form a single network and to eschew non-Catholic mergers -- or risk losing their "Catholic" identity.

By January 1995, as the for-profit Columbia/HCA acquired three more Chicago-area hospitals, giving it nine in the area, Bernardin was emphasizing the need to strengthen the not-for-profits.

By May, the Catholics-only merger idea received a serious jolt when the four-hospital system run by the Cleveland-based Sisters of Charity of St. Augustine went into partnership with the largest U.S. for-profit hospital system, Columbia/HCA Healthcare Corp.

Elementary survival, the Catholic systems contend, is why they are growing: to have enough fiscal might and profitability to avoid selling out or closing at the local level.

In February, Catholic Health Corp., Moeller's system, sold Trinity Memorial Hospital outside Milwaukee to a non-Catholic system, Aurora Health Care, and watched the 178-bed hospital abandon its Catholic identity.

Patient care and community health are not the only issues at stake. Catholic health care systems are among the largest employers in the nation. Until the latest merger announcement, the biggest individual provider in terms of revenues ($3.9 billion) was St. Louis-based Daughters of Charity National Health Service, which has 71,000 employees -- more than Delta Airlines' 68,000 employees.

The employment and dollar figures mean that Catholic health care systems are a vigorous segment of the trillion-dollar national health care industry, an industry that accounts for about 14.5 percent of the gross national product.

Meanwhile, a cost-conscious Congress -- which saw nonprofits generate healthy revenues in the early 1990s -- wants to ensure that nonprofit hospitals are doing something extra to earn their tax exemption and their right to finance their debts by issuing tax-exempt bonds.

Thirty years ago, health care wasn't really an industry at all. In the 1960s, "medicine" meant the family doctor and the local hospital. It was a "caring" profession. The patient came first; reimbursement (usually a combination of employment coverage and personal copayment) came second. Profits were not publicly discussed. But a major segment of the population -- particularly the poor and the poor elderly -- lacked coverage.

For better and for worse, eight developments changed that situation:

* Doctors began to specialize, and the family practitioner headed for extinction. Each specialty referral added to the care cost.