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Catholic Health Initiatives feels pinch of expensive integration strategy

Health system officials, however, expect the changes to prop up the major faith-based system.

Health system will cut its workforce of 90,500 by 1.7 percent amid some hefty losses incurred in the expansion.Health system will cut its workforce of 90,500 by 1.7 percent amid some hefty losses incurred in the expansion.

The nation’s third largest faith-based health system is struggling financially following its big bet on clinical and insurance integration. But health system officials expect the changes to pay off in time.

This year, Catholic Health Initiatives is set to reduce its workforce of 90,500 by 1.7 percent, mostly in administrative and support services, across its 19 states of operations — amid some hefty losses incurred in the expansion that will see the nonprofit company vying against dozens of regional health systems, for-profit hospitals and also insurance companies.

To counter that, nonprofit will offer 54 million Americans living in its footprint a higher standard of quality care and new insurance options, relying on the creation of clinically integrated networks that enables it to share services and treat its patients across a broad spectrum of care.

Financing those plans, however, are going to be a challenge.

Before the new year, S&P downgraded CHI’s ratings from A+ to A, after a $134 million loss for the first quarter of fiscal year 2015. That’s after CHI lost $641 million for the full year of fiscal 2014, according to S&P’s calculations. Another ratings agency, Fitch, has kept CHI’s A+ rating, but with a negative outlook.

[Also: S&P outlook weak for nonprofits]

And though CHI has posted revenue higher revenue — jumping from less than $10 billion in 2012 to $14 billion today — it’s debt has also swelled from $6 billion in 2012 to $8.4 billion in 2014.

Following the S&P report, CHI posted its own notice of 48 outstanding bond issues, with $674.6 million of it from local and state agencies in Kentucky, where a number of high costs, such as IT spending and charity care, were blamed for the losses.

Catholic Health Initiatives was founded in 1996 by Catholic hospital ministries in Kentucky, Nebraska, Ohio and Pennsylvania, and its business has grown ever since — especially since the Affordable Care Act became law.

Led by Kevin Lofton, CEO since 2003, CHI is headquartered in Colorado, and has an $22 billion in assets comprised of 105 hospitals, 30 critical access facilities, community clinics, nursing colleagues, home health services and a budding insurance portfolio. In the last three years, CHI has made more than 10 acquisitions in Kentucky, Nebraska, Ohio and Texas, including the $1.2 billion purchase of  the six-hospital St. Luke's Health System in Houston and two different health plans.

CHI’s 2020 vision statement calls for the health system to improve patient care while also moving beyond its focus on the hospital.

The system is striving for a “Perfect Care” composite score of 95 percent or higher, aiming for  no  serious events, and a high-performing, happy workforce. More importantly, it hopes to generate 65 percent of revenue from services other than inpatient care.

Currently, CHI earns about 55 percent of its revenue from outpatient and physician services, with 45 percent still dependent on inpatient services. The largest share of its payer reimbursement, 41 percent, is from patients in managed care plans, followed by Medicare at 32 percent, Medicaid at 9 percent and commercial insurance at just 6 percent.

That payer mix may change in CHI’s favor, however, if its venture into insurance succeeds.

Last summer CHI renamed its Collab Health insurance subsidiary Prominence Health, led by Juan Serrano, a former UnitedHealthcare and WellCare executive. Built from a Washington-state Medicare plan and Arkansas-based HMO CHI acquired in 2013 and 2014, Prominence Health will focus on population health, utilizing value-based reimbursement.

Already selling Medicare Advantage plans in Kentucky, Nebraska, Ohio, Tennessee and Washington, this year, CHI is set to offer commercial plans in five states — and then in 18 states in 2016.

“Prominence Health will significantly advance CHI’s ability to excel in a pay-for-value environment,” Serrano, CHI’S senior vice president of payer strategy and operations, said in a statement. “Through Prominence, CHI has developed a catalyst to position us as a broadly integrated health system that enables exceptional health services and superior value for the communities we serve.”

Another prong of CHI’s long-term strategy is standardization of technology, quality metrics and clinical practices across its many hospitals, including four academic medical centers, nursing homes and other facilities, in part through OneCare, its system-wide EHR project that’s expected to cost $2 billion through 2017.

"We have a history of being autonomous, unique hospitals, and over time it has become more important to be less autonomous and more prescriptive from the national perspective," said Ann Shepard, CHI's chief nursing informatics officer and a former critical care nurse at one of CHI's founding Sisters of Mercy hospitals, in an interview last year. "We're trying to decrease variability."

Chart: CHI payer and revenue mix as of September 2014

Twitter: @AnthonyBrino

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