Senior Living Business: System With Varied Assets Focuses On LTC--

Benedictine Health System Reorganizes, Sheds Acute Care Operation

February 1, 2008

Health care systems with varied assets — long-term care and acute care — take note: You might consider splitting your long-term care assets and your acute-care assets in order to better focus on each. Essentially, that’s the tack that Essentia Health, the corporate parent of Benedictine Health Systems (BHS), decided to take. Back in June 2007, when Senior Living Business talked with Dale M. Thompson, president and CEO of BHS, about the organization’s success with its skilled nursing offering and about other related long-term care issues, he couldn’t let on that Essentia Health had already been working on a major corporate reorganization for six months. At the time, BHS operated 10 acute care hospitals and about 50 long-term care campuses in Minnesota and several neighboring states.
As of January 2008, BHS is focused exclusively on the long-term care facilities, and Essentia Community Hospitals and Clinics (ECHC), a newly formed not-for-profit subsidiary, is operating the acute care hospitals. Thompson continues to lead BHS; Dan McGinty, formerly senior vice president of acute care operations for BHS, was named president and CEO of ECHC. The two organizations will operate independently but will continue to have a strong relationship. BHS will continue to provide specific contractual services to ECHC and will be the preferred long-term care manager for ECHC-affiliated organizations.
Essentia Health, a $1.3 billion health care system based in Duluth, Minnesota, was formed in 2004 through a partnership between Benedictine Health System (BHS) and St. Mary’s Duluth Clinic (SMDC). "For the past five years, Essentia Health has focused on small community hospitals, the entire long-term care continuum, and a larger tertiary-care model with physician integration as its particular focus — an area where SMDC has been particularly successful," says Thompson. "As we looked to the future, we saw the differences in those types of health care facilities and efforts. And while it’s helpful to have a strong organization and a strong balance sheet to support all those types of efforts, we thought reorganizing could bring more focus to each area. So we decided to move long-term care — BHS — out of Essentia Health."
BHS will remain wholly autonomous and, while still sponsored by the Benedictine Sisters of St. Scholastica Monastery who retain certain reserve powers, governance will be BHS’s exclusive purview. "It’s not that we couldn’t act independently before," says Thompson, "but when you’re trying to focus on multiple things, they become competing interests for priority, capital, and so on." Of course, long-term care and acute care each access capital very differently. BHS doesn’t seem to have much difficulty accessing capital that, unlike for hospitals, is usually unrated and sometimes tax-exempt.
The reorganization wasn’t at all contentious. In fact, everyone viewed it as an incredibly positive effort, according to Thompson. "We all saw multiple opportunities and the need to be able to focus to capture those opportunities," he says. "It just made a lot of sense for us to reorganize, and the decision was seen as being very forward-thinking."
From the long-term care perspective, Thompson points out two primary areas where he sees real opportunities. "First, it’s very helpful to a hospital’s balance sheet if long-term care can be financed off the balance sheet," he explains. "A number of acute care systems have already contacted us to say that they are looking for a long-term care partner who can offer smaller nursing facilities to their higher acuity patients for shorter stays."
The other big opportunity is the consolidation of Catholic sponsorship of long-term care. "Over the last 15 years, Catholic hospitals have come together to form large hospital systems," he says. "That same thing has not happened in long-term care. We have a number of Catholic-sponsored long-term care organizations, including hospital organizations, that would like to work with us in that area, as well."
Coming up with the reorganization model and getting all participants comfortable with the result took all of 2007. "We were capitalized very well for this," Thompson adds, "and we have a strong management team." BHS earned $24 million on revenue of $381 million for the year ended June 30, 2007, according to Thompson. Revenue from long-term care and post-acute operations was about $200 million, with an additional $75 million from joint ventures.
"We see stress across the whole long-term care continuum," Thompson notes, "but I think our new focus will help alleviate some of that pressure."
We’ll be watching...
 

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