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

National Catholic Reporter, June 16, 1995 by Arthur Jones

Five years earlier, more systems controlled more hospitals. Catholic systems are not exempt from this pressure so, from East Coast to West, mergers and alliances continue apace.

Health services researcher Professor Stephen Shortell of Northwestern University's J.L. Kellogg Graduate School of Management said all systems -- Catholic included -- have to adjust to the changes in the health care industry. Hospitals have to face up to "right-sizing," to integrating hospitals and allied services -- acute care beds, clinics, home health services, hospices -- to meet their communities' needs and remain in business, he said.

By national hospital standards, the Catholic health care system generously executes its commitment to those in need. According to congressional testimony, Catholic hospitals are in the front ranks of the nonprofits, spending the equivalent of 2.7 percent of annual revenues on the needy, compared with 0.6 percent by for-profit systems. But no law obliges tax-exempt hospitals to admit the poor; in fact, by law, hospitals can turn away those unable to pay.

The 59 Catholic health care systems in the Catholic Health Association constitute the largest nongovernmental, nonprofit health care sector in the United States. They are an industry within an industry. More than 220 orders of women and men religious are represented. Catholic health care is the largest women-owned, women-run industry in the world. For instance, in terms of revenues, the Daughters of Charity of St. Louis is the third-largest U.S. hospital system after nonprofit Kaiser Permanente and for-profit Columbia/HCA.

The largest U.S. medical care systems are for-profit. Using Modern Health-care magazine's 1994 figures, the top three acute care for-profit systems, in terms of revenues, are Columbia/HCA: $10.2 billion revenues, $1.1 billion in operating income and 39,000 beds in 165 hospitals; Quorum Health Group: $2.3 billion revenues, $56 million in operating income and 32,000 beds in 256 hospitals; and Healthtrust-The Hospital Co., $2.2 billion revenues, $237 million operating income and 10,000 beds in 81 hospitals.

Systems merge and combine rapidly: Columbia, for example, merged twice in 1993-94 to get to its present size. There are mergers between Catholic systems and among Catholic and other for-profit or nonprofit systems, too. Given their size, the financial amounts involved in Catholic health care systems take a little absorbing. The Daughters of Charity's $3.9 billion in 1993-94 revenues was nearly four times the Vatican's annual budget.

Some Catholic women religious orders in the health care field may have more money at their fingertips than all the U.S. bishops' combined. All top 12 Catholic systems have larger annual budgets, and most have bigger bank balances, than the budgets and endowment of the top 12 Catholic colleges and universities (see chart).

In actual amounts, the net incomes of these systems -- what is left each year to put in the bank or use for expansion or retrenchment or charity -- are huge, too.