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Dignity-CHI link’s plus and minuses


The talks between Dignity Health and Catholic Health Initiatives on affiliating or doing an outright merger have led analysts to point out  that a link could produce some economies of scale and take advantage of the systems’ complementary geographies but  that there are also some big potential problems, such as the systems’  huge debt.

Moody’s Investors Service says that a merger between the two would be “a net positive.”

An outright merger would create America’s largest not-for-profit hospital company, with combined annual revenue of $27.8 billion and 142 hospitals. The current leader, St. Louis-based Ascension, has annual revenue of $20.5 billion.

San Francisco-based Dignity has leading market-share positions in Southern California, the San Francisco Bay Area, Arizona and Nevada. Dignity has 39 acute-care hospitals and 250 ancillary-care sites.

CHI’s 103 hospitals are  situated where Dignity has none. The system, which posts annual revenue of about $15.2 billion, has 11 big multi-hospital hubs. Modern Healthcare noted that  Englewood, Colo.-based CHI’s hospitals are spread over 22 states, “providing economic diversity that makes it less susceptible to reimbursement pressures in a single state or region that might or might not have expanded Medicaid, for instance.”

But Fitch Ratings says that both systems have high debt, and both have underperformed financially in the past year.  In the case of CHI, that led Fitch to downgrade  CHI’s debt three notches from A+ to BBB+ with a negative outlook.

The publication noted that “high debt levels can be worrisome in an industry going through massive changes in reimbursement from fee-for-service to value-based payments and constant demands for capital to buy new IT systems, upgrade clinical equipment and open patient access points.”

“The teams  {of the two systems} wrestling over whether to join forces will focus on big-picture issues—such as whether larger scale would produce costs savings, better care and a stronger credit structure—so they can reach a conclusion by early 2017. ”

To read the Modern Healthcare article, please hit this link.

CHI getting out of scary insurance business


Englewood, Colo.-based Catholic Health Initiatives has decided to get out of the health-insurance business.

CHI’s insurance subsidiary, QualChoice Health, formerly known as Prominence Health,  has been offering Medicare Advantage and commercial insurance products to members in six states. But, Becker’s Hospital Review reports, the insurance business had a operating loss of almost $97 million in the first nine months of fiscal  2016, which ended March 31. In the like year-earlier period, QualChoice had a nearly $19 million operating loss.

CHI is one of many systems that have launched health plans in recent years, especially since the Affordable Care Act went into effect, but with often disheartening results.

McKinsey & Co.  found that of the 89 hospital-system insurance plans, more than 40 had negative margins in some or all of the past three years. To read the Becker’s story on this, please hit this link.


Growing CHI reports better results


This Legacy Tapestry was created in 2010 by Lynda Teller Pete using Navajo symbols. The tapestry represents CHI’s mission.

Modern Healthcare noted that the system has made  some big acquisitions in the past few years that  boosted revenue but also its expenses. “But for 2015, it managed to get on top of its costs, and the system said its growth strategy is starting to yield a return,” the publication reported.

“In Texas, for instance, a booming market that CHI entered just last year, it now has $2 billion in annual revenue. It also continued to benefit from its turnaround strategy in Kentucky, where it is seeing higher patient volume and better cost control in subsidiary KentuckyOne Health.

“CHI also highlighted growth in its Iowa, Minnesota, North Dakota and Pacific Northwest markets.”

Before accounting for restructuring costs, CHI reported a fiscal 2015 operating surplus of $169.8 million,  on $15.2 billion in revenue. That’s a 1.1 percent operating margin, compared to  fiscal 2014’s pre-restructuring operating surplus of $7.9 million on $13.6 billion in revenue. After restructuring costs, its  fiscal 2015 surplus was $3.1 million, compared with fiscal 2014’s  $109.4 million operating loss.


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