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

National Catholic Reporter, June 16, 1995 by Arthur Jones

"They can legitimately ask, 'What distinguishes this Catholic hospital from that Catholic hospital if they're in two different networks?'"

Dougherty said his initial reaction to Bernardin's action in Chicago -- telling the Catholic hospitals to form Catholic networks -- was positive. "On the other hand," said Dougherty, "in other areas of the country there are limits. This may work for the Chicago area where there are so many Catholic providers, but in a community, a diocese, where there is only one Catholic hospital, these will have to partner non-Catholic entities to survive.

"Then, we get into some very tricky questions. How close can you get to something you regard as wrong before the wrong is your wrong, too?"

Dougherty said Catholic hospitals dealing with a hospital that does tubal ligations or with an insurance company that routinely covers abortions or with physicians' groups that routinely refuse Medicaid patients means asking, "How closely do you want to be linked?"

"I think we have to be as flexible as possible," he said, "while keeping an eye on the identity question."

Issues such as tubal ligations already have thwarted some mergers. Last year, Maryland-based Bon Secours Health System participated in a $28 million proposal to buy South Carolina's Hilton Head Island Hospital -- until the other partners decided to continue offering tubal ligations.

Northwestern's Shortell said, "If the only intent of the merger is to try to take down costs, that probably isn't going to do it. It has to be more along lines of, 'How is this going to add value to patients in your community?'"

Another variant is to combine for buying power. In 1993 the national Sisters of Charity health system of Cincinnati and the national Daughters of Charity system of St. Louis applied their fiscal might (around $8 billion annual revenues) to group purchasing. Meanwhile, the Federal Trade Commission last year eased restrictions on health care system mergers, but it still casts a wary eye, permitting some and denying others.

Many Catholic health care systems will survive, said Shortell, "and some will, in our opinion, be leaders: the Sisters of Providence of Seattle, Mercy Health Services of Farmington, Mich., the Daughters of Charity, Catholic Health-care West. Some individual, freestanding Catholic hospitals may not be survivors."

There are such instances. Early last year, owing $43 million, Sacred Heart Hospital and Rehabilitation Center of Norristown, Pa., sponsored by the Missionary Sisters of the Most Sacred Heart, Reading, Pa., closed its doors. One reason: The town was not large enough to support three hospitals.

The poor

"(Our) charity patient care was $21.7 million in 1994," the Sisters of Charity, Leavenworth, Kan., told NCR. "This was 2 percent of our operating revenue, or about 55 percent of our revenue over expenses from operations. That would be equivalent to a tax rate of 36 percent -- which is consistent with what we would pay if we were taxpaying."

"No one is turned away from a Mercy Health System hospital based on inability to pay," the Cincinnati-based system reported to NCR. "In 1993, the latest year for which data are available, (Mercy Health System) provided $108.9 million in care for the poor and services that benefit the community."