By Lisa Rapaport, The Sacramento Bee, Calif. Knight Ridder/Tribune Business News
Oct. 14--Nonprofit hospital chain Catholic Healthcare West has reported net income instead of losses for the first time in six years Monday, due in large part to continued strong performance from its Sacramento-area hospitals.
CHW, a 41-hospital system based in San Francisco, reported net income of $51 million on operating income of $64 million for the fiscal year ended June 30.
That comes on the heels of operating losses totaling $980.4 million over the five previous years, including a $47.4 million loss in fiscal 2002, according to a report from Standard & Poor's.
'Coming off of significant losses, our financial performance this year is really the culmination of a three-year turnaround effort,' said Lloyd Dean, president and chief executive of CHW. 'Many of our markets, including Sacramento, really stepped up to the plate with strong operating performances, improved productivity, and improved market share.'
Two local facilities -- Mercy General Hospital in Sacramento and Mercy San Juan Medical Center in Carmichael -- played a lead role in the company's fiscal about-face, earning 13 percent of the chain's patient revenues in California in fiscal 2003, state records show.
Both hospitals are major surgery centers that treat patients coming from a wide swatch of Northern California. Mercy San Juan is one of three trauma centers in Sacramento, along with Sutter Roseville Medical Center and UC Davis Medical Center.
'San Juan and General are of course our largest operations, and their revenues have grown accordingly,' said William Hunt, the vice president of operations for CHW who oversees hospitals in this region.
Those two hospitals, along with four others in the Sacramento region, accounted for 19 percent of the patient revenues CHW made in California in the last fiscal year, according to state records reported by 33 of the chain's California facilities.
Rapid population growth in the Sacramento region increased demand for hospital care and helped improve revenues here despite a nationwide downturn in hospital admissions, Hunt said.
Nationwide, nonprofit hospitals have seen revenues fall in recent years as the sputtering economy left more uninsured patients and more people with coverage unable to pay their share of bills.
But not here.
'If anything, we have the opposite problem in Sacramento,' Hunt said. 'With the population growth showing no signs of letting up, our biggest concern is that demand for care could outstrip our capacity.'
In December, CHW announced plans to spend $400 million to expand hospitals in Sacramento, part of $2.4 billion to be spent systemwide. Those plans include a new cardiac wing at Mercy General and a new general medical/surgical ward at Mercy San Juan.
This construction comes during a building boom for Sacramento hospitals. Among other projects in the works: Sutter Health is expanding its Roseville facility and building a new maternal/child hospital in Sacramento; Kaiser plans a new birthing hospital in Roseville; and UC Davis Medical Center is adding to its surgery and emergency departments.
All this comes as CHW and other health systems operating in Sacramento have seen a reversal in their fortunes, said Robert David, a regional vice president of the Hospital Council of Northern and Central California.
'Some time ago when local hospitals were getting savaged in their managed care contracts, they saw the wisdom of combining into large care systems in order to cut operating costs and command more reasonable payments from the health plans,' David said. 'We are now seeing significant investment in expanding hospitals in the community as that effort has paid off.'
For systems such as CHW that may need help from the bond market to fund all this building, the positive financial results have another payoff.
Moody's Investors Service and Standard & Poor's, two major credit ratings agencies that assess how risky it is to invest in a hospital system's bonds, may soon release new evaluations of CHW based on its strong performance in the last fiscal year.
In September, Moody's put the hospital chain on its 'watchlist' of companies that may get a ratings upgrade, affecting roughly $2.2 billion in outstanding debt. Moody's currently rates CHW a Baa2. Analysts who cover the company could not be reached for comment Monday.
Many analysts said the new CHW executive team, headed by Lloyd Dean, has transformed a loose conglomerate of locally controlled hospital groups into a stronger, streamlined corporation capable of using its size as an asset.
'It was a chaotic cluster of little systems with little local boards that was incredibly inefficient,' said Craig Kornett, top health analyst for Fitch Ratings. 'Now they run a tight ship out of San Francisco.'
Standard & Poor's plans to release an updated credit report on CHW as early as today, though the company has not indicated whether an upgrade is in the cards. S&P currently rates the hospital chain at BBB.
'I think that the turnaround is now complete,' said Lisa Zuckerman, a nonprofit hospital analyst for S&P. 'We're still looking to see how well they can accomplish their goals and still keep up this financial performance.'
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(c) 2003, The Sacramento Bee, Calif. Distributed by Knight Ridder/Tribune Business News.
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