November/December 2007

After a Strong Fiscal 2007, a Look Ahead

Fiscal year 2007 saw Catholic Health Initiatives’ best financial performance to date, driven by strong return on investments but also by strong operating performance throughout the system. “Leaders and staff across the national offices and market-based organizations are to be commended for these excellent results,” said Colleen Blye, chief financial officer for Catholic Health Initiatives. Among other achievements in fiscal year 2007, Catholic Health Initiatives reached a new high in liquidity as measured by days of total cash.

While Catholic Health Initiatives showed growth in its financial performance, Blye noted two significant drivers: revenue growth and expense management. “During fiscal year 2007, Catholic Health Initiatives achieved revenue growth that exceeded growth from patient volume, which is very impressive,” she said.

Blye also cited excellent progress in management of expenses, especially supply and labor expenses, which together account for 50 percent of total expenses across the system. “The investments we have made in Catholic Health Initiatives’ infrastructure, such as CHI Connect, are giving our leaders the ability to better monitor expenses and practice good stewardship of resources in all areas,” she said.

During 2007, Catholic Health Initiatives also restructured its debt, which provided significant value to the system and its facilities. “By restructuring our debt, we enabled about $50 million in annual cash savings,” said Blye. “By taking time to evaluate our debt structure and to take advantage of favorable interest rates, we are better able to support Catholic Health Initiatives’ growth strategy and efforts to meet the health needs of our communities. This is evidenced by our increased level of capital investment during the 2007 fiscal year, as well as our continued strong support of community benefit initiatives.” Across the system, the consolidated cost of community benefit and the unpaid cost of Medicare for fiscal year 2007 was 3.7 percent greater than in fiscal year 2006.*

While fiscal year 2007’s results are cause for celebration, Blye advises that the budget for fiscal year 2008 reflects a cautious approach. “As a result of lower financial projections for fiscal year 2008, as projected by our markets, the rate of capital investment for fiscal year 2008 was somewhat constrained,” she said. “If performance exceeds budgeted expectations, consistent with fiscal year 2007 results, additional investment is available. Our financial planning process needs to become more reliably predictive of the future so as not to unnecessarily constrain needed investment. We are cautiously optimistic that Catholic Health Initiatives’ financial performance for fiscal year 2008 will meet the achievements of our past year’s results.”

During the 2008 fiscal year, Catholic Health Initiatives will also work toward fuller integration of the strategic vision and the financial planning process; and better alignment of performance targets and expectations with annual budgeting and financial planning. “These and other steps will help us achieve our goals,” said Blye.

* The cost of community benefit, including charity care of $154 million, was $480 million in fiscal year 2007, which was 3.7 percent greater than the prior year. Community benefit includes the cost of supplies and labor related to free clinics, donations and other services provided for people who are poor and to help meet local community needs. Community benefit also includes the amounts by which services provided to Medicaid and charity care patients do not cover costs, but does not include the unpaid costs of the Medicare program. Community benefit does not include bad debt expense. This reporting is consistent with guidance issued in 2006 by the Catholic Health Association of the United States.