Catholic Health Initiatives' performance plan cut a $146M quarterly loss to $1.5M
CHI's cost cuts and Louisville divestitures turned a $146M quarterly operating loss into a near-breakeven $1.5M and more than doubled quarterly EBIDA to $282M.
What was changed
Catholic Health Initiatives (CHI), the Englewood, Colorado-based Catholic health system of more than 100 hospitals, spent fiscal 2017 deep in the red: a $585M operating loss for the year, and a $146M operating loss in the quarter ended December 31, 2016 alone. Restructuring costs weighed on results while falling patient admissions and reimbursement pressures were pushing hospital systems nationwide toward consolidation.
The fix was what CFO Dean Swindle called a comprehensive performance-improvement plan. CHI cut labor and supply chain costs and lowered restructuring expenses, and it kept shrinking its loss-making footprint: the transition of KentuckyOne facilities to the University of Louisville continued alongside acute care divestitures in the Louisville area, while the Kentucky region posted what CHI called a 'strong improvement trend' across all markets.
By the quarter ended December 31, 2017 the plan showed. The operating loss narrowed to $1.5 million — near breakeven against a $146 million loss a year earlier — operating EBIDA more than doubled to $282 million from $126 million, and net income reached about $215 million. CHI attributed the swing to the cost cuts, lower restructuring expenses and insurance payouts from Hurricane Harvey damage; physician visits rose 3.6% even as most patient volumes fell.
'We are definitely seeing the very positive results of a comprehensive performance-improvement plan take hold,' Swindle said, pointing to 'strong momentum' into fiscal 2019. The recovery also set the terms for scale: in December 2017, after a year of talks, CHI signed a merger agreement with Dignity Health to create the country's largest nonprofit health system by operating revenue — 139 hospitals across 28 states — expected to close in the second half of 2018.
Why it worked
Cost structure, not demand, was the lever: labor and supply-chain cuts drove the swing while most patient volumes fell.
Pruning loss-makers helped twice: the Louisville divestitures shrank the footprint even as the surviving Kentucky markets improved.
Honest attribution kept it credible: CHI named Hurricane Harvey insurance payouts among the tailwinds instead of dressing the quarter up as pure operations.
Fixing the income statement first gave CHI leverage: it signed the Dignity Health merger while still loss-making, but with quarters proving the plan worked.
What can be applied
Enter mergers on momentum, not distress: consecutive improving quarters let a loss-making system negotiate scale as a partner, and disclosing one-time tailwinds keeps the story credible.
Aftermath
The Dignity Health merger was expected to close in the second half of 2018, pending regulatory approval, and would make the combined system the country's largest nonprofit by operating revenue, with 139 hospitals across 28 states. Swindle expected 'strong momentum for the second half of this year and through fiscal 2019,' and the KentuckyOne transition to the University of Louisville continued.