By Lisa Rapaport, The Sacramento Bee, Calif. Knight Ridder/Tribune Business News
Dec. 5--Catholic Healthcare West will spend $400 million on construction and renovation at its Mercy Healthcare Sacramento hospitals as part of $2.4 billion to be spent systemwide, according to industry sources.
While CHW executives would not discuss the projects with The Bee, details began to trickle out Wednesday as Mercy San Juan Medical Center announced construction plans at a neighborhood meeting in Carmichael.
Mercy San Juan hospital President Mike Uboldi said the company will spend $121 million to add 120 beds in a new hospital wing to open by 2007. The new general medical/surgical wards will treat patients recovering from injury or illness.
'We are seeing an increase in population growth and the population is aging,' Uboldi said. 'We are adding the hospital beds necessary to meet the needs in this community for more access to care.'
Sources familiar with plans at other area Mercy hospitals expect CHW to announce more local projects soon.
The building boom comes as San Francisco-based Catholic Healthcare West, the state's largest nonprofit hospital chain, is rebounding from $1 billion in losses since 1996 and investing more resources in its financially healthiest and fastest-growing markets.
Four Sacramento-area hospitals earned roughly 40 percent of CHW's net income last year in California. They have become models of efficiency for the rest of the 42-hospital system and will see major construction projects in the coming years, said company executives.
'Some of our stronger markets are from Sacramento up the Valley to Redding,' said Michael Blaszyk, CHW executive vice president and chief financial officer. 'We are looking at several different expansion options in those markets.'
Sacramento has recently seen a series of expansion announcements as hospitals recover from losses in the late 1990s and focus on improving facilities to keep pace with soaring population growth and the needs of the region's aging population:
-- Sutter Health will spend $280 million locally for work that includes adding a 60-bed acute care tower at Sutter Roseville Medical Center and building a 156-bed maternal-child hospital at its midtown Sacramento medical center.
-- UC Davis Medical Center in Sacramento will spend $500 million on projects that include a new research building for its Medical Investigation of Neurodevelopmental Disorders Institute, a genome and biological sciences building, and an addition its surgery and emergency departments.
-- Kaiser Permanente will spend $150 million on a new birthing hospital in Roseville and has budgeted $1.6 billion over 10 years on local projects, including new medical offices in Roseville, Elk Grove and Folsom.
'Until a few years ago, the Sacramento market was dominated by a handful of HMOs that held down payments to hospitals,' said Robert David, regional vice president of the Hospital Council of Northern and Central California. 'Now, hospitals have more market power, reimbursements from HMOs have improved, and we're seeing capital projects for the first time in years.'
The trick for each health system will be to identify services and markets that set them apart from local competitors, said Craig Kornett, a senior director with Fitch Ratings, a credit rating firm.
'For Catholic Healthcare West to remain viable, they will need to stay on target with their financial turnaround and also be strategic about where they expand facilities,' said Kornett. 'Many hospitals are building, and the challenge is to put the right services in the right place at the right time.'
Catholic Healthcare West improved its bottom line through an aggressive corporate overhaul that condensed 10 regional operations into four divisions, saving $87 million over the last 18 months.
Mercy Healthcare Sacramento's hospitals -- including Mercy General Hospital and Methodist Hospital in Sacramento, Mercy San Juan Hospital in Carmichael and Mercy Hospital of Folsom -- became part of a new Northern California division.
After restructuring, Catholic Healthcare West trimmed its losses 37 percent in the fiscal year that ended June 30. It lost $54 million on revenues of $4.5 billion, a sign of a financial turnaround following combined losses of $933 million over the four previous fiscal years.
Now comes the hard part, say industry analysts.
Long accustomed to using revenues from financially healthy hospitals to offset losses in communities where it loses money, Catholic Healthcare West will need to take a hard look at how to balance its faith-based philosophy of nonprofit medicine with the realities of the marketplace, said Martin Arrick, an analyst with ratings agency Standard & Poor's.
Capital-area hospitals will play a big role in helping other CHW facilities improve operations and boost their bottom lines, said William J. Hunt, senior vice president of operations for CHW and a former Mercy executive.
Mercy San Juan Medical Center, for example, has saved money and improved medical results by shortening the average length of hospital stays for several common conditions. Its efforts to speed up lab work and to send healthy patients home faster are being copied at several CHW hospitals in California.
Mercy General, meanwhile, has established standards to ensure that heart attack patients receive aspirin and other medicines quickly, reducing the time it takes to restore blood flow to arteries. Other CHW hospitals will follow suit.
'With restructuring, the goal is to have the best practices from Sacramento implemented at every other hospital that could benefit from it,' said Hunt.
Bee staff writer Bob Walter contributed to this report.
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(c) 2002, The Sacramento Bee, Calif. Distributed by Knight Ridder/Tribune Business News.
