CFC in the News 2003
HEALTHLEADERS

Mission and Margin

 

Catholic providers find themselves caught in an ongoing struggle-providing treatment for the poor and uninsured while still surviving the everyday operational pressures facing all hospitals. Can this powerful force in the nonprofit sector continue on its spiritual path while meeting the financial challenges of the marketplace?

For commercial fishermen in Massachusetts, finding affordable health insurance was becoming more and more difficult by the mid-1990s. The dangers of the trade, falling incomes due to smaller catches, and the fact that most fishermen were self-employed, conspired to put health coverage out of reach for many.

That’s why Michele Ouellette of Beverly, Mass., was so relieved in 2001 that her husband, Kevin, a lobsterman, had earlier obtained coverage through a new health plan expressly designed for the state’s fishermen and their families by the regional Catholic health system. Pregnant with twins and up against unexpected complications, Ouellette, then 30 years old, would eventually spend five weeks in a Boston hospital before finally giving birth to a pair of healthy daughters.

“As a fisherman’s wife, I worry. I worry about my husband’s safety. I worry about the weather. I worry about the catch and the price. But I don’t have to worry about health insurance anymore,” Ouellette says. “The bill for my hospital stay was well over $100,000. If we’d had that on our shoulders, it would have been there for the rest of our lives.”

The insurance program that covered Ouellette’s hospitalization was created not by a commercial carrier, the commonwealth of Massachusetts or an agency of the federal government. Rather, it was the brainchild of officials with Boston’s Catholic archdiocese and executives at Caritas Christi Health Care, a nonprofit, six-hospital system sponsored by the diocese.

Boston-based Caritas Christi doesn’t have hospitals in any of the state’s fishing ports and stood to reap no financial reward by spearheading the two-year collaborative effort that resulted in creation of the program. Yet the system’s commitment-fueled by a realization that fishing families statewide were vulnerable and suffering-was unwavering, according to J.J. Bartlett, executive director of the program, known as the Fishing Partnership Health Plan.

“The Fishing Partnership Health Plan wouldn’t exist if it wasn’t for Caritas Christi and the archdiocese,” Bartlett says. “Today, five years later, it’s developed into a model for providing an underserved population with access to high-quality, affordable healthcare coverage.”

Mission Driven

The fishermen’s plan is just one example of the broad reach of the Catholic healthcare mission, one grounded in the core tenets of Christianity, says Michael Collins, M.D., CEO of Caritas Christi and a key player in the development of the fishermen’s health plan.

“Healthcare was integral to the life of Jesus,” Collins says. “The gospel is full of stories of him giving sight to the blind, hearing to the deaf, speech to the mute. So if Catholic healthcare is going to be authentic in the modern world, we’ve got to be the modern-day embodiment of Jesus. Emulating the work of Jesus is what the mission of Catholic healthcare is all about.”

Fulfilling that lofty objective and all it implies-caring for the poor, the downtrodden and uninsured-remains the bedrock principle underlying the vast institution that Catholic healthcare has become. Begun by 12 French Ursuline sisters who arrived in New Orleans almost 50 years before the American Revolution, Catholic healthcare today is the largest faith-based organized healthcare effort in the country.

In terms of sheer size, few nonprofit entities can match the independent but allied entities that make up Catholic healthcare. According to the Catholic Health Association, the country’s 622 Catholic hospitals and 61 systems account for 16 percent of all community-hospital admissions. Catholic facilities constitute 11 percent of all U.S. hospitals and 26 percent of rural health providers. In 2001, nearly one-third of all Americans-88 million people-received treatment through Catholic care ministries, which include not only hospitals but outpatient clinics, nursing facilities, home healthcare and hospice services. Approximately 600,000 individuals are employed by Catholic hospitals alone. Published reports put total Catholic healthcare revenues in excess of $30 billion annually.

With some notable exceptions, Catholic provider organizations in recent years have largely sidestepped the pitfalls of system formation and in many cases aggregated into massive and economically successful provider networks. The consolidation has come as the governance and administration of Catholic hospitals has steadily shifted from almost exclusively religious women and men to a mix of both religious and lay professionals.

Catholic healthcare organizations also are beginning to flex their collective political muscle to influence the debate on healthcare reform and, like Caritas-Christi, work to find new ways to provide coverage to the nation’s 43 million uninsured.

Pressure from All Sides

Despite their successes, fulfilling the mission has probably never been tougher for Catholic healthcare providers. The problems affecting all healthcare nonprofits-skyrocketing costs, anemic investment returns, widespread labor shortages, shrinking reimbursements, a growing population of uninsured and increased pressure from for-profit, niche competitors-have tested Catholic providers in unprecedented ways.

At the same time, a growing chorus of critics is pushing Catholic healthcare organizations to alter their policy of denying patients access to a wide range of reproductive health services. It’s pressure that some Catholic healthcare leaders say could lead to restrictions on vital state and federal dollars.

Finally, the ongoing evolution from religious to lay leadership raises questions about the long-term sustainability of the values embodied in the Catholic mission. Yet even in the face of these significant economic, philosophical and structural obstacles, few are predicting the demise of Catholic healthcare anytime soon. Participants and observers say Catholic providers enjoy several key advantages that should allow them to persevere.

Chief among these is a singular focus on mission, which appears, at least for now, to be firmly rooted in most organizations. Catholic healthcare organizations also benefit from a strong commitment to advanced management systems and technology, as well as the rich collaborative opportunities that exist within the Catholic healthcare universe.

“Compared to a lot of faith-based organizations, the Catholics appear to have a strong sense of what they’re about in terms of healthcare,” says Jeff Ellis, a veteran healthcare attorney with the Overland Park, Kan.-based firm of Lathrop & Gage. Ellis has worked closely with several Catholic systems in the past.

“It’s been my experience that people who work in Catholic systems are extremely dedicated to their mission and seem willing to make personal sacrifices to fulfill that mission. You get the sense that they’re not in it for personal gain.”

Modern-Day Problems

Douglas D. French, president and CEO of St. Louis-based Ascension Health, notes that the problems Catholic hospitals face are no different than those confronting other community providers. Ascension is the nation’s largest nonprofit health system, with 67 hospitals in 20 states, revenues of $8.5 billion and 100,000 employees.

“Access to capital will be a major challenge in the future,” French says. “The labor shortage also poses a significant challenge. Demand for healthcare will continue to grow, but who will be there as the caregiver? Discovering and utilizing new technology is another challenge. We are making the most of technology, encouraging creative innovation and sharing best practices across the system.”

Last year, Ascension increased its already significant marketplace clout with the acquisition of the Carondelet Health System, a St. Louis-based, nine-hospital organization operating in seven states. The rise of Ascension and numerous other large systems, including Denver-based Catholic Health Initiatives and Newtown Square, Pa.-based Catholic Health East, underscores Catholic healthcare’s accelerating transition from small, independent hospitals operated by nuns to vast and complex business enterprises.

“I think the emergence of Ascension Health has helped strengthen Catholic healthcare,” French says. “We are more committed than ever to our mission and our vision of a vital Catholic ministry that will be sustained for decades to come.”

Jack Wheeler, a professor of health management and policy at the University of Michigan’s School of Public Health in Ann Arbor, points to the unifying effect of mission as one of the prime factors driving Catholic providers’ success.

“What they’ve been able to do is realize that they have more common ground than differences across different Catholic orders and as a result, they’ve been able to put together some very large and very successful organizations,” Wheeler says.

Catholic Healthcare West

That’s not to say that all Catholic organizations have enjoyed smooth sailing in the push toward consolidation. San Francisco-based Catholic Healthcare West, which operates 41 hospitals in California, Arizona and Nevada, piled up losses of more than $1 billion between 1997 and 2002. Following a major reorganization initiated in 2001, the system pared its losses the following year and has made it into the black this fiscal year with income of $51 million, according to Lloyd Dean, the system’s president and CEO.

“We have turned around what had been a bleak financial situation, improved labor relations, enhanced employee recruitment and retention programs and advocated on key issues that policymakers are considering,” says Dean, who assumed the top position at CHW in 2000. “The result is a much stronger ability to further our mission.

“Today, two-thirds of CHW hospitals are either first or second in their markets, and CHW hospitals are located in high- population-growth areas in all three of the states we serve,” he says. “With a solid financial position, CHW has greater opportunities to improve patient care, invest in new technology and better serve those less fortunate. Our faith-based mission challenges us to deliver on our values and it brings out the best in our organization.”

Lisa Zuckerman, a director and healthcare analyst with Standard & Poor’s in San Francisco, says CHW’s problems stemmed from the fact that “their eyes were bigger than their stomachs” when it came to purchasing hospitals and physician practices through the mid-to-late 1990s.

“They had a tremendous appetite for pretty aggressive acquisitions, but they didn’t have the appropriate management controls in place to absorb the acquisitions and exert control over the entities they put together,” she says.

Since 2001, she says, the organization’s management has “corrected a lot of structural issues and now they’re left to figure out at the margins how to really make it work the way some of the other big systems do.”

In mid-October, S&P revised its outlook for CHW from stable to positive and affirmed the system’s BBB bond rating. It cited a return to positive operating results, improvements in liquidity and a strategic plan that calls for “disciplined capital allocation and targeted portfolio adjustments in under-performing markets.”

Tight Focus

Broadly speaking, Zuckerman says, Catholic healthcare administrators appear to have learned to effectively weigh the commitment to mission against the often-harsh economic realities of the marketplace.

“They have become pretty savvy at understanding where that balance point is and they’ve learned how to make hard decisions,” she says.

Wheeler, of the University of Michigan, says many Catholic systems have excelled at developing high-quality management teams and operational systems that have enhanced the performance of individual hospitals within the networks.

The Catholic commitment to innovation and excellence was underscored in 2002, when SSM Healthcare, a 21-hospital Catholic system based in St. Louis, became the first healthcare organization in the country to win the coveted Malcolm Baldrige National Quality Award bestowed by the Department of Commerce. The award recognizes distinction in leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management and business results.

Bill Schoenhard, chief operating officer with SSM, says the performance criteria that underlie the Baldrige process have been in place at SSM for more than seven years as an extension of a larger, enterprise-wide continuous quality improvement effort.

“In simplest terms, the Baldrige business model provides focus and discipline around improvement efforts that have the highest strategic importance to the organization,” he says. “It’s a way to ensure that your strategic planning process is integrated throughout the organization, and that you’re working off data and measurements that can track your improvement over time.”

Michael D. Connelly, president and CEO of Cincinnati-based Catholic Healthcare Partners, a 30-hospital, $3 billion system, likewise says that developing measurements on everything from management performance to employee retention rates and quality of care has become a major priority for his system.

“We attempt to define a whole series of things rather explicitly,” he says. “These metrics flow into a balanced scorecard, which is used to constantly evaluate the performance of the organization.”

Like Caritas Christi and its involvement in the creation of the fishermen’s health plan, Catholic Healthcare Partners similarly defines its mission in terms that extend beyond the traditional boundaries of healthcare. For example, the organization provides more than 500 individual housing units to low-income families across communities in three of the five states in which it operates. In addition, Connelly says, the organization is committed to paying a “living wage” to its lowest-paid employees system-wide-a rate of about $8.60 per hour vs. $5.15 for the prevailing minimum wage.

Says Richard Statuto, CEO and president of St. Joseph Health System in Orange, Calif., and the current chairman of the Catholic Health Association: “I think the key to successful leadership, to successful innovation and to operating a successful organization is that leaders really listen to those whom they serve. And I believe Catholic healthcare does that as well as anyone.”

Shared Knowledge

Administrators and observers say another hallmark of Catholic healthcare is the collaborative spirit that exists within systems as well as across the broader Catholic healthcare environment.

“They find ways to share information and they uncover efficiencies in a way that competitive organizations can not,” says Ellis, the Kansas healthcare attorney. “There’s an openness about it, I believe, a truer sense of collaboration than you typically see with other, competitive nonprofit organizations.”

At SSM Healthcare, a program called Clinical Collaboratives regularly brings together multidisciplinary teams from across the system to improve clinical performance in a predefined area. The clinician-driven effort is aimed at identifying best practices, whether from within the system or not, in order to create evidence-based protocols that can then guide the treatment of specific diseases throughout SSM.

Schoenhard says the spirit of collaboration extends from system to system. He notes that executives, administrators and managers in areas such as finance, human resources, information technologies and strategic planning from systems around the nation routinely gather to exchange ideas.

“We collaborate on advocacy, we collaborate on leadership development, we collaborate on improving the quality of care, we collaborate on how to be a strong, value-based ministry,” says Statuto of St. Joseph Health System. “It goes on nationally, on a statewide basis and within cities and counties.”

The Specialty Hospital Threat

Looking out across today’s healthcare landscape, Schoenhard of SSM and others say one of the most immediate threats facing nonprofits generally and Catholic hospitals in particular-given their role as a safety-net providers-is the rise of specialty niche surgery centers.

“They’re basically coming in and skimming the cream of hospital revenues and the more profitable services,” Schoenhard says. “All nonprofit community hospitals, not just Catholic, are having an increasing difficulty with reduced margins, particularly hospitals serving the poor. So when you have niche players cherry-picking the more profitable services and taking paying patients, it becomes a very serious challenge.”

Randall G. Nyp agrees. He’s president and CEO of Via Christi Medical Center, the flagship hospital of Via Christi Health System, a six-hospital network based in Wichita, Kan. Nyp notes that Wichita has the highest number of specialty hospitals in the country per capita, with four facilities serving a population of 300,000.

“To the extent that we continue to lose business to the physician-owned hospitals, we’ll continue to struggle financially,” Nyp says, noting that Via Christi experienced a $6 million drop in net revenue for cardiac care after a cardiac specialty hospital opened locally in 1999. Ultimately at risk, he says, is Via Christi’s ability to continue to fulfill its mission and offer a full range of emergency and acute-care services. The hospital, the sole remaining nonprofit in Wichita, provided a total of $32 million in uncompensated care in fiscal 2002.

To combat the problem, organizations like Via Christi and SSM are working to rally support for federal legislation that would exclude physician-owned hospitals from existing exemptions in conflict-of-interest regulations. Essentially, the Breaux-Nickels-Lincoln amendment to the Medicare Prescription Drug Bill would prevent the physician owners of specialty hospitals from self-referring patients at the expense of larger, full-service hospitals.

Preserving the Mission

Observers say one of the greatest challenges facing Catholic healthcare in the years ahead will be ensuring that the passion for-and commitment to-the Catholic health ministry and mission survives, as the number of nuns involved in hospital sponsorship and administration continues to dwindle.

It’s more than a passing concern. In the United States, the number of nuns has fallen dramatically in recent decades, from nearly 180,000 in 1965 to just 73,316 in 2003, according to the Center for Applied Research in the Apostolate, a Washington, D.C.-based research center on the Catholic Church. The organization attributes the drop in large part to the growing number of professional opportunities for women.

Sister Maryanna Coyle, the immediate past chairperson of Denver-based Catholic Health Initiatives, says those women entering religious communities today typically are older and more educated than in years past, and hence aren’t as likely to follow a training regime to become hospital administrators. At the same time, individuals with medical backgrounds increasingly are forgoing healthcare management positions and instead seeking hands-on ministries, such as providing care for the poor in Appalachia or for Mexican immigrants in south Texas.

As a result, considerable effort is being made across Catholic healthcare to devise ways to instill in the laypersons running the hospitals and serving on the boards an understanding of the Catholic mission.

“The issue is what kind of education, training and support is necessary to enable the laity to pick up that mantle?” says Kevin Fickenscher, M.D., a layperson who has been involved in Catholic healthcare for 20 years as a physician and as a board member at a number of systems, including Catholic Health Initiatives.

“It’s a crucially important issue,” he says. “We absolutely don’t want to lose that commitment to mission.”

Coyle says CHI is working with three other health systems to create a two-year program designed to cement a commitment to mission in laypersons.

“I’m optimistic,” she says. “The laity are not all Catholic, but they are good men and women who believe in the good works of Catholic healthcare, and who are willing to commit themselves to learning about the mission, the values and the traditions of religious congregations and then expressing that knowledge in a way that is most appropriate for the 21st century.”

Father Michael Place, president and CEO of the Catholic Health Association, says he’s confident that Catholic providers can overcome the many difficulties they face today.

“Part of my background is as a teacher of church history, and one of the things I’ve learned in studying history is that if you really step inside the period, the challenge of that time was considered to be the greatest challenge that had ever been.

“So it seems a little unfair to sit here today with all our advantages and say that these problems are worse in the aggregate than the challenges of religious women who rode in oxcarts across the plains and delivered healthcare in logging camps in the Northwest. In the end, our confidence comes not from our history, but from the fact that we believe we’re not doing this alone. We’re doing it in service for the Lord.”

Reproductive Care: The Struggle

One of the most contentious aspects of Catholic healthcare involves church prohibitions against the provision of reproductive health services.

At issue are church guidelines, known as “directives;” which bar Catholic hospitals from offering abortions, contraceptive sterilization and in vitro fertilization. The hospitals are also prohibited from prescribing or dispensing contraceptive devices. This ban includes the use of RU-486 or the so-called “morning-after'” pills that are designed to terminate a pregnancy after an egg has been fertilized, even in cases of rape.

The directives are part of a list of 72 rules and regulations issued by the United States Conference of Catholic Bishops and known in full as the Ethical and Religious Directives for Catholic Health Care Services.

But Jon O’Brien, vice president with Catholics for a Free Choice, a Washington, D.C.-based advocacy group, says Catholic hospitals have a duty to provide reproductive services, particularly in areas where they operate the only available hospital.

“Public policy makers need to be aware that when Catholic hospitals are looking for funding, the reality is that many of their constituents may be denied reproductive services,” O’Brien says. “Our position is that if a Catholic hospital doesn’t want to provide reproductive services, then it shouldn’t be looking for public money.”

O’Brien adds that Catholic organizations should be willing to compromise on reproductive healthcare in cases where a nonreligious hospital is acquired by a Catholic system. He notes that there were 171 mergers between Catholic and non-Catholic hospitals between 1990 and 2001.

Another critic, Lois Uttley, director of MergerWatch, a healthcare advocacy group based in Albany, N.Y., says her organization doesn’t propose that all Catholic organizations be required to provide a full range of reproductive services. However, she says Catholic hospitals should at least disclose to patients the kinds of services they do not offer. And they should also be compelled to provide effective emergency contraception to rape victims.

“Many of these Catholic hospitals prohibit staff from even discussing treatment options that may be viewed as immoral by the church,” she says. “We don’t think that is acceptable.” As an example she notes that women who go through C-sections often want to have a tubal ligation performed at the same time. In some cases, she says, women who have scheduled deliveries at Catholic hospitals have not been informed that the procedure was prohibited and thus have been “shocked and surprised to find they could not have the procedure done at the time of birth.”

Uttley notes that both the provision of emergency care and the protection of the patient’s right of informed consent are conditions for participation for all providers in the Medicare and Medicaid programs. While she does not favor restricting government funds to Catholic organizations, “we don’t think Catholic hospitals have special rights to refuse to provide certain types of emergency services, or to hide information from patients,” she says. “But there needs to be some responsibility to the taxpayers who pay for Medicaid and Medicare.”

For their part, Catholic healthcare leaders note that most Catholic hospitals don’t have restrictions on the provision of contraceptive medications in instances of rape, provided the medication in question acts prior to fertilization of the egg, which in Catholic doctrine is considered to be the moment at which life begins.

Catholic officials clearly take the threat posed by organizations like Catholics for a Free Choice seriously.

Sister Mary Roch Rocklage, chairwoman of the St. Louis-based Sisters of Mercy Health System and the immediate past chairwoman of the American Hospital Association, says that linking Medicare and Medicaid funding to the availability of reproductive health services would effectively destroy Catholic healthcare.

“It’s a real struggle for us,” she says. “The movement right now is focused on the state level. But if it becomes national and we’re not reimbursed, then Catholic healthcare will not survive.”

Lloyd Dean, president and CEO of Catholic Healthcare West, notes that few, if any, hospitals provide all health services in one location. Citing American Hospital Association data, he points out that one-third of hospitals in the United States do not have birthing rooms, 40 percent do not offer cancer care and 80 percent are not equipped for open-heart surgery.

“It’s unfortunate that some try to define women’s reproductive healthcare services in terms of abortion and sterilization,” Dean says. “Catholic Healthcare West hospitals provide a wide range of women’s health services, including state-of-the-art breast-care services, labor and delivery, well-woman and well-baby care and some of the best cardiac care available.”

The Catholic Health Association, the umbrella trade and advocacy organization of Catholic hospitals and systems, recently launched an initiative called Freedom to Serve, which is aimed at supporting Catholic hospitals’ right to continue to abstain from providing services that are inconsistent with Catholic religious tenets.

“We see the efforts of groups like Catholics for a Free Choice and Merger Watch as an attempt to fundamentally realign the historical partnership between the not-for-profit community and state and local governments in the provision of healthcare,” says Father Michael Place, president and CEO of the association.

“Abandoning the principles they represent would be a loss for our society and a retreat from our nation’s heritage of pluralism and respect for differences. There is also the potential that important, perhaps irreplaceable, healthcare services could be lost to our communities.”

At least one observer familiar with the debate is sympathetic to the Catholic position. M.C. Sullivan is an executive vice president with the Midwest Bioethics Center, a secular, bioethics think tank based in Kansas City, Mo. Sullivan is a nurse and attorney by training.

“When you deal with a faith-based institution, one has to understand that these organizations are mission-driven and based on values and religious beliefs that are immutable,” Sullivan says. “That’s the good thing about them.

“So anyone who approaches a Catholic institution should know before they get there that this particular organization operates from a very specific set of values and directives. I think the real question is not ‘Why don’t the Catholics change?’ but rather, ‘Why aren’t the expectations more realistic and better managed on the part of the person approaching this institution?’

“I’m no apologist for the Catholic Church, but the fact of the matter is that the Catholic Church is the greatest deliverer of healthcare in the world, the greatest deliverer of education in the world, and the greatest deliverer of social services in the world,” Sullivan says. “The statistics speak for themselves. So to slam them for not being what they aren’t is, to me, impractical, unfair and almost silly.”

This article first appeared in the December 2003 edition of HealthLeaders Magazine.