By JULIE MINDA
The Daughters of Charity Health System of Los Altos Hills, Calif., is seeking proposals from organizations interested in buying the system or its individual hospitals, or in forming a partnership that would strengthen the system.
The system, which has six hospitals and a network of outpatient care sites, is open to discussions with Catholic, public, nonprofit and for-profit organizations, but the preference is to work with a Catholic nonprofit system that would protect the legacy of the system's foundresses and sponsors, the Daughters of Charity, said Robert Issai, president and chief executive of the Daughters of Charity Health System.
Sr. Marjory Ann Baez, DC, is provincial of the Daughters of Charity Province of the West and chair of the health system's board. She said it was a difficult decision for the system's leadership and sponsors to seek a buyer. "We wanted to preserve health care services in the communities we serve, but our losses made it impossible to do what we needed to do. We saw the need for new owners so our hospitals could thrive."
Daughters of Charity Health System's locations
The Daughters of Charity system had been negotiating a merger with St. Louis-based Ascension Health since spring 2012, but the systems were unable to forge an agreement. Issai said that while both systems had been excited about the prospect of an acquisition — including because both systems have facilities that had been founded by the Daughters of Charity — it became clear that the systems' interests were not well matched. Issai said that many mergers are built around geographically aligned and concentrated networks. Since Ascension Health does not have any hospitals in California; and since the Daughters of Charity system's hospitals are dispersed across several markets, that geographical alignment was missing. While Ascension Health did not purchase the system, the two formed an alliance about a year ago around group purchasing, operations improvements and new service development for the Daughters of Charity system.
Issai said the Daughters of Charity system's leaders have since talked with "almost every major player in California," but have been unable to identify a new buyer or partner.
Issai said the system's leadership decided to expand and publicize their search, and to consider selling each hospital individually, because they recognized that Daughters of Charity system hospitals still need a suitor, and one with access to the capital necessary to succeed in the current health care market. He said with the changes under way in health care, hospitals must offer a continuum of care and be considered essential to their communities to survive. Daughters of Charity hospitals would benefit from expanding their services and offering more services across the continuum of care, said Issai.
The system has found it problematic to make these investments, particularly since it has been especially hampered by the country's financial downturn that started around 2008, Issai noted. He said Daughters of Charity hospitals are located in low-income communities that were profoundly impacted by the downturn and that have had a slower recovery than other communities. Additionally he said that it is very difficult to operate in California. Unfunded state mandates — including the requirement to upgrade facilities for seismic safety — make it more expensive to deliver care in California than in other states, Issai said.
With the challenges it is facing, the system has been running on a negative operating margin. And in the fiscal year ending June 30, the consolidated net loss was about $75 million, after including investment income.
Sr. Baez said it is clear to system leaders and sponsors that "the responsible thing to do is to find new ownership, blessed with the resources necessary to thrive."
But she added the sisters are sad about the prospect of discontinuing their sponsorship of hospitals. The Daughters of Charity of the West began their health care ministry in California more than 150 years ago. Their ministry today includes the health system as well as sponsorship of schools, social agencies and ministries for the elderly.
Thirteen of the Western Province's 112 sisters serve at the Daughters of Charity system headquarters or at the hospital level. Some sisters serve on the system's or the hospitals' boards. Sr. Baez said the province will explore ways for the sisters to maintain a presence with the hospitals as a deal is forged with a suitor. She said it is too early to know what that presence might be.
Some associates and physicians feel sad because the ministry may be changing, Sr. Baez said. "But (the Daughters of Charity) want to support the direction we've chosen and look for new ways to serve."