How Dignity Health's unique acquisition paved the way for a big 2013

System will continue expanding into occupational medicine, urgent care

Rather than focus on hospital M&A, Dignity Health bolstered its bottom line in 2013 mainly by expanding its reach in occupational medicine and urgent care, Modern Healthcare's Beth Kutscher reports.

Unlike other major health systems, San Francisco-based Dignity mostly avoided acquiring hospitals last year. At the same time, Dignity reported $10.4 billion in revenue in fiscal year 2013, a 5% increase on a same-facility basis and 9.6% higher than in fiscal 2012. The system also achieved $100 million through cost-cutting measures, according to the system's year-end earnings.

U.S. HealthWorks acquisition paying dividends

Dignity's decision to break with the Catholic Church was partly driven by a strategy to expand its geographic footprint, Kutscher writes, and the health system acquired occupational medicine provider U.S. HealthWorks in a $455 million deal that closed in August 2012. At the time, U.S. HealthWorks had 172 locations in 15 states—a number that Dignity has increased to 208 locations in 20 states.

Catholic system parts ways with church as it eyes expansion

Mary Connick, Dignity's vice president of finance and corporate controller, told Kutscher that the deal contributed $322 million in revenue in fiscal 2013. The acquisition also added three million ambulatory visits—nearly tripling Dignity's volume in fiscal 2012—even as the system underwent a 3.7% decline in inpatient volumes at its acute-care hospitals.

"The volume is profitable, geographically diversified and continues to grow," Connick says. Expanding outpatient volumes has been a key priority for Dignity as payers look to tamp down inpatient utilization and shift care from inpatient to outpatient settings, she added.

Assessing growth opportunities

Michael Blaszyk, Dignity's executive vice president and chief financial officer, says the U.S. HealthWorks deal was unique in that the group was self-funded, and the system has not had to put additional cash into the business. "The cash on cash returns have been significant," he says, adding that Dignity will continue to explore similar opportunities in occupational medicine and urgent care.

Lessons from the C-suite
Lloyd Dean, CEO of Dignity Health

By contrast, the health system has been more tentative when approaching potential acute-care deals. "We would certainly like to expand our acute-care ministry outside of California, Arizona, and Nevada," Blaszyk says, adding, "We're looking at those opportunities, but we do not want to do anything deleterious to the balance sheet."

Blaszyk says Dignity also would consider acquisitions that either increase scale or improve operational efficiencies for its hospitals. "We have worked very hard to form relationships with private equity—we're very active in assessing those opportunities," he says.

Dignity has also has set ambitious cost-cutting goals for the coming year: $200 million to $300 million in operational efficiencies, Blaszyk says. The savings will come from a number of areas, including staffing for demand, negotiations with its unions, outsourcing and supply chain management, and revenue-cycle management initiatives (Kutscher, Modern Healthcare, 12/26/13 [subscription required]).

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