Enlarging Providence 

Will an imminent merger impact St. Pat's?

A meeting in Seattle next month could change the shape of the health-care landscape in Western Montana.

Spokane-based Providence Services-which oversees operations of St. Patrick Hospital and Health Sciences Center in Missoula, Benefis Healthcare in Great Falls and St. Joseph Medical Center in Polson, along with medical and educational facilities in Great Falls-plans to merge with the Providence Health System, a much larger Seattle-based health-care organization. If completed, the merger would create a single system including 27 hospitals and more than 35 non-acute health-care facilities, as well as physician clinics, health plans, a liberal arts university, 45,000 employees and numerous other health and education services.

A final decision could come as early as Dec. 2, when the two organizations' boards of directors plan to hear final recommendations on the proposal.

According to Providence Services officials, merger talks began in earnest last spring, although there was no official word until September. Since then there's been little published news of the merger and even fewer details released about the plan and what it might mean for Montana. That has some observers concerned.

"This merger is really flying under the radar here in Montana, and that makes me uncomfortable," says Jacquie Helt, president of the Montana ALF-CIO.

Helt says since learning of the proposed merger she's discussed it with dozens of people during her travels around Montana as head of the state's top labor organization. She says the concerns she hears most often are focused on the level of local control Montana's hospitals will or will not maintain once administrative oversight shifts from eastern Washington to a centralized office in Seattle.

"I think the structure of local boards is very important," she says. "As a labor representative and a citizen of Montana, I'm uncomfortable about being in a position of losing our local voice."

Providence Services and Providence Health System currently operate as independent corporations in separate markets, though both organizations are sponsored by the Sisters of Providence, a Catholic order of women with a service history in the region dating back to the 19th century.

Great Falls' Benefis, meanwhile, is engaged in a highly publicized effort to disaffiliate from Providence Services, and officials there say local control of hospital operations is the primary issue driving the split. Officials wouldn't comment on negotiations, citing a confidentiality agreement between the hospital and Providence Services-an agreement signed a day after board President Jim Cummings and CEO John Goodnow were interviewed by the Great Falls Tribune.

Prior to that agreement, Goodnow told the Tribune last month that the split was necessary to "maintain unfettered local control of Benefis."

According to news reports, Benefis and Providence Services have been at odds since 2002, when the Great Falls hospital obtained million in bond financing through a group affiliated with Providence Services. A year later, Providence Services asked Benefis' board of directors to modify hospital bylaws to give the parent organization more control over operations.

More recently, Providence Services reportedly declined to issue bonds that would have helped finance a new cancer center for Benefis. "They told us the bonds couldn't be issued until we agreed to change the bylaws," Goodnow told the Tribune.

Loss of local control won't be an issue in Missoula, says Steve Witz, president and CEO of St. Pat's.

"The commitment of Providence Services to serve each of the service areas...has been demonstrated since the inception of the corporation," says Witz. "I don't see this expansion of size or the integration of the two systems changing that at all. Both organizations have an established track record of commitment to service."

Not-for-profit hospitals are obligated to reinvest profits they generate back into hospital operations, and they're also required to provide charity care to patients who can't afford to pay for their treatment. In order to fund these missions, not-for-profit hospitals are increasingly compelled to become more competitive.

A look at Providence Health System's financial reports indicates that the larger health-care organization has aggressively sought out new ways to become more profitable in the face of rising health-care costs, lower insurance compensation and falling Medicare and Medicaid reimbursements.

Providence Health System has received Wall Street praise for "strong management actions" such as "divestiture of non-performing assets," including the sale of the not-for-profit Providence Yakima (Wash.) Medical Center to the for-profit Health Management Associates in 2003. However, financial analysts have raised concerns about Providence Health Systems' ability to fund its sizeable three-year capital improvement plan of $1.1 billion. A 2005 Fitch Ratings report expects Providence Health System to fund a majority of the plan with cash flow.

St. Pat's and Benefis have both been strong profit centers within

the Providence Services organization, which raises the question of whether cash flow generated by two of the state's largest hospitals could be diverted to cover out-of-state capital improvements if the corporations merge.

"I'm not concerned about that. I feel pretty strongly about that," says Witz. "The financial operation of Providence Health System is very similar to Providence Services in that accounting of each of the hospitals is done on a hospital-specific basis."

In other words, he says, funds won't drift from St. Pat's to cover improvements at hospitals in other parts of the country.

What a larger system would do, Witz says, is help hospitals save money, particularly in the pooling of medical malpractice insurance and capital acquisition.

"This [merger] is really a corporate integration designed to give strength because of its size," says Witz, noting that the Sisters of Providence oversaw all of the hospitals prior to the formation of the two health-care systems. "[I]f this were 'corporation A' merging with 'corporation B,' there would probably be some unknowns. But this merger is really a reintegration of two systems sponsored by the Sisters of Providence."

So what changes can we expect at St. Pat's if and when the proposed merger takes place? Not many, says Witz.

"I don't even think people in the hospital will notice a change," he says.


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