In 2003, Baptist Health System was the dominant healthcare player in the central and north part of the state, with 10 hospitals, a string of health clubs, nursing homes, retirement homes, a home-health-care business and more. Today it’s a fraction of its former self. But hospital officials say after several years of restructuring, BHS is poised to move forward.
“More than three years ago, a new strategic direction for Baptist Health System was set to strengthen our mission and focus on our hospitals,” says Shane Spees, who was named president and CEO in January. “This effort included plans to invest more than $115 million in capital projects at Princeton, Shelby, Walker and Citizens, and included our joint-venture partnership to build a new hospital for Montclair, now Trinity Medical Center.”
Back in 2003, the then-82-year-old nonprofit healthcare organization had a problem: There wasn’t enough money for capital improvements.
The Balanced Budget Act of 1997, which slashed Medicare reimbursements, had been bad news for BHS, which derived some 55 percent of its revenue from Medicare. According to published reports, by summer of 2003, the system had cash reserves of around $160 million and overall debt of $370 million.
To address the problem, longtime CEO Dennis Hall and then-BHS board chairman Bobby Keith were working on a deal to sell at least some of its properties to or form a partnership with Texas-based Triad Hospitals, the University of Alabama Birmingham Medical Center and/or other parties.
The Board of Trustees balked. In a dramatic weekend shake-up in July 2003 (one local publication called it “a boardroom coup”), the board halted any deals and ousted Hall. Keith and five other board members resigned.
A majority of the board disagreed with top leadership’s view of Baptist’s financial position and believed the system could go it alone. Michael Drummond, who took over as chairman after the shake-up, said that while payments from Medicare and insurers had declined in recent years, Baptist had good market share and substantial liquid assets. He said at the time the board had no plans to sell any core assets, and believed BHS could be in an acquisition and growth mode within the next two years through more savvy business management.
But after months of “an intense and extensive analysis of the systems, its challenges, and its strengths,” while several interim executives came and went, the board of trustees in early 2004 named a new CEO, Beth O’Brien, and a major restructuring plan that would “sharpen its focus as a provider of faith-based, community-focused health care.”
Despite Drummond’s earlier assertion that the system would not sell any core assets, the restructuring called for selling three of the system’s 10 hospitals, funneling significant funds into capital improvements and focusing efforts on acute-care and ambulatory-care facilities by selling two nursing homes. (About the same time the restructuring was announced, Drummond was asked to resign.)
While the restructuring cut BHS’s losses for the next fiscal year, it wasn’t enough. Over the next few years, the restructuring went further. Eventually, BHS sold off all but four of its hospitals. The YMCA bought all of Baptists’ SportsFirst health clubs except the ones located in its hospitals. Baptist sold the rest of its skilled nursing facilities.
All these deals reflected Baptist’s efforts to refocus on the hospital business. For instance, earlier this year, BHS arranged with several local home health care equipment businesses to take over the patients of its home health care business. One of them was Happy Home Health. Co-owner Joe Bryant says the transition has gone as smoothly as can be expected, with the company picking up a lot of Baptist patients at both its Bessemer and Pelham locations. He notes that the home medical equipment business is one a lot of hospitals have problems with.
“The durable medical equipment component of this business is different from the way hospitals normally operate,” explains Bryant, who also worked as a consultant for a year at UAB when they had their own durable medical equipment division. “It’s sort of a foreign concept to them.”
One of the big differences is in the way things are billed, he says. “I think that was part of Baptist’s problem. They got into a billing issue where they were putting a lot of equipment out, but they weren’t getting paid on everything that was going out.”
Today, BHS consists of four hospitals: Citizens Baptist Medical Center in Talladega, Walker Baptist in Walker County, Princeton Baptist in Birmingham, and Shelby Baptist in Shelby County. It also operates senior housing in nine locations in north central Alabama. A subsidiary, BHC Health Centers, employs about 90 doctors in about 40 locations around the Birmingham area.
In addition, two years ago, BHS formed a joint venture with Triad splitting ownership of Montclair Baptist Medical Center. Triad owns 65 percent of the partnership, but the governing board is split 50/50 between the two organizations. There are plans to move Trinity to a new facility off I-459 in Irondale. The hearing on the certificate of need, which is being contested by Brookwood Medical Center, is scheduled for this month.
In June 2006, Beth O’Brien retired after two years at the helm of Baptist’s aggressive restructuring efforts. Her replacement, Shane Spees, formerly was president of Valley Baptist Hospital Holdings in Texas. Wayne Pate, chairman of the BHS Board of Trustees, called him “a strong, capable, and collaborative leader who can build on our successful restructuring.”
“We have now completed the work of transforming Baptist Health System from an integrated healthcare delivery system into a hospital system focused on meeting the healthcare needs of those we serve in the greater Birmingham community, and in the many communities of Shelby, Talladega, and Walker Counties,” Spees says. “I believe our new structure and direction better focuses us as we move forward in meeting both our mission and vision.”
Next Month: Baptist Health System Looks to the Future
October 2007
