Catholic Order to Sell St. Luke to Private Firm
In a move described as highly unusual, owners of St. Luke of Pasadena plan to sell the 52-year-old Catholic hospital to a private profit-making firm.
St. Joseph Health System, which manages eight hospitals owned by the Sisters of St. Joseph of Orange, has signed a letter of intent with Summit Health Ltd. under which ownership of the hospital could be transferred to the Los Angeles-based health-care firm as early as Jan. 1.
The Vatican-approved sale came as a surprise because Catholic hospitals are almost never sold to profit-making concerns. People ranging from employees to the chairman of the board of trustees, which oversees day-to-day operations and was not informed of the proposed sale before it was announced on Oct. 1, said the move was unexpected.
“I am disappointed because now we won’t have a Catholic hospital,” said John Watkins, chairman of the board of trustees.
Sister Suzanne Sassus, general superior of the order which set up St. Joseph Health System to help administer the hospitals, said that escalating costs at the aging facility had been cutting into the quality of care at St. Luke.
“It was becoming more difficult for us to maintain our values,” she said. “The financial situation was impacting on our philosophy of care.
“It was a difficult decision to make and we even considered closing it as a hospital and perhaps turning it into a home for the aged.
“But we finally concluded that our primary duty was to safeguard the employees and their families who depend on St. Luke for their livelihood, and the only way we could do that was to find someone who could put a lot of money into it.”
Alan Chamison, senior vice president of St. Joseph Health System, said the “first preference was to interest another Catholic system, but we were unsuccessful.” He said that the 167-bed hospital needs extensive upgrading and renovation, but does not generate enough revenue to finance the necessary capital improvements.
According to Gayle Ensign, president of the 46-member California Assn. of Catholic Hospitals, the proposed sale is apparently the first of its kind in the state.
“A change of ownership in Catholic hospitals here has gone to other Catholics,” she said.
“Most of our hospitals are in good financial shape and are run efficiently, so I hope this is not a trend of the future,” Ensign said. “But this is a changing time for hospitals and we are likely to see community hospitals in general sold. The for-profit entities here are strong because they have access to capital.
“Historically health care was never meant to be a big business--hospitals were in the community because of the need,” she added. “Community hospitals still are a social institution, especially Catholic hospitals.”
Although there have been a few exceptions, the sale of a Catholic hospital to a profit-making
firm is very unusual, said Diane Moeller, vice
president and director of member services for the Catholic Health Assn. of the United States. She said that the 623 hospitals in the association include almost all the Catholic hospitals in the country.
Moeller said that no Catholic hospitals have been sold to investor-owned companies in the
last five years.
“A couple of small hospitals have been turned over to nonprofit community groups to prevent their closure,” she said. “And if you go back far enough (in time), more than 10 years ago some Catholic hospitals were sold to investors.”
The sale of St. Luke would leave the San Gabriel Valley with only two Catholic hospitals, Queen of the Valley in West Covina and Santa Teresita in Duarte.
Chamison said that St. Joseph Health System had quietly let it be known that it wanted to sell St. Luke.
Robert Herzig, vice president of corporate development for Summit, said his firm became interested in the Pasadena hospital because his company specifically looks at community hospitals when making acquisitions.
“Pasadena is a community that supports St. Luke and that is why the hospital appeals to us,” he said.
Neither Summit nor St. Joseph would discuss the possible purchase price. However, Chamison said at least $12 million in proceeds from the sale would go to liquidate St. Luke’s liabilities. Other proceeds would go to other hospitals in the St. Joseph Health System to reduce their $173 million in long-term debt, Chamison said.
Local Catholic charities may also benefit from the sale. The St. Luke Foundation, a nonprofit corporation created in 1979 to support development of the hospital, has $2.5 million, Chamison said, and it will be up to foundation members to decide how to use it. Although it could go to the Sisters of St. Joseph of Orange, he said, it probably will remain in the area in which it it was raised.
Herzig declined to elaborate on Summit’s plans for St. Luke, saying that it would be premature to do so before the contract is signed, probably within the next month. But he said the buyer had agreed as part of its proposal to upgrade the facility. He said that if the sale is completed, St. Luke will continue to operate as an acute-care general hospital and keep the same name.
Owns 13 Hospitals
Summit, which had gross revenues in 1984 of $360 million, owns 13 hospitals, 53 nursing homes and 7 retirement homes, in California, Colorado, Arizona, Texas and Iowa. Four of the hospitals are in Southern California: Doctors Hospital of Santa Ana, Midway Hospital Medical Center in Los Angeles, Santa Ana Hospital Medical Center and Whittier Hospital Medical Center.
According to Chamison, St. Luke’s problem lies in its antiquated and inefficient layout. He said the surgical suites are outdated and that the hospital lacks space for expansion within the main hospital building on its one-block site on Washington Boulevard just east of Altadena Drive.
He added that St. Luke does not fit in geographically with the other Southern California hospitals owned by the order, all of which are in Orange County. The order also owns four hospitals in Northern California and one in Texas.
He said that although the order’s other hospitals are the dominant health-care facilities in their areas, St. Luke has been overshadowed by Pasadena’s Huntington Memorial Hospital, a 606-bed regional medical center.
Just three years ago St. Luke announced an $45-million capital improvement program, beginning with a $6-million co-generation energy plant. That plant was built but the rest of the program, calling for construction of a new main facility, never materialized.
“Medicare went off of cost reimbursement and because of incentives offered to health-care providers, hospital stays have dropped and fewer people are admitted,” Chamison said.
“While St. Luke never operated at a deficit and has been marginally profitable, if the hospital had borrowed money for capital improvements it would have required going beyond its resources. It has only a 50% bed occupancy and we tried but we couldn’t reverse the trend.
“Summit was willing to put money into the hospital to make it successful and that is one of the things that was appealing about the company (as a buyer),” Chamison said.
Patients and hospital volunteers say that St. Luke has found a special niche in an area in which competition is keen among health-care providers. They say that St. Luke has been able to offer more personalized patient care than larger institutions and has developed a strong sense of community over the years.
“I felt like they gave me tender loving care and treated me like I was special,” said Helen Grayson, who has been a patient at St. Luke three times in the last 10 years. “Because the hospital is small, the nurses get to know you better and have a more personal feeling.
“I’m not Catholic, but I’m disappointed (by the proposed sale),” she said.
Grayson became a volunteer at the hospital because of her good experiences as a patient and, like many other volunteers, she does not know if she will continue to serve when the hospital changes ownership.
Some St. Luke volunteers said they dislike the idea of working for a profit-making hospital.
Dee Ashton, vice president of the San Marino Guild of the hospital, said she thought some volunteers, including herself, might drop out, but most have not made up their minds.
“I would be working for the community but it would still be in a profit-making hospital,” she said.
“Some volunteers will leave because the hospital was Catholic,” said Sue McInerney, director of volunteers, “and some will stay because they realize they will be helping the same patients they did before.”
“That’s how I got involved, so I wouldn’t have that same sort of feeling,” Watkins said, adding that he has already served the maximum term allowed under board bylaws anyway.
Sense of Duty
“People are disappointed, but a lot will continue because they feel a duty to serve and not to abandon the hospital,” he said.
“I hope the new owners keep our fine community image. We have a need for this kind of hospital--because we are small we can provide more personal attention. It is a caring place.”
The hospital now has about 170 active volunteers and those who stay will provide services for patients rather than raising funds to buy equipment for the hospital.
Chamison said that Summit was selected because it indicated a willingness to pump money into the hospital to improve it, and because of its history of strong community ties.
“Our most important objective and first concern was for the employees and the medical staff,” Chamison said. “We wanted to find someone to operate the hospital in a way that could best benefit them. Our object was people first rather than a Catholic buyer.
“We were looking for someone to provide some continuity and while we looked at several companies, we liked the way Summit operated (its other hospitals) with the community, medical staff and employees.
“We were very selective in terms of whom we even talked to. We wanted dollars committed to the hospital and a commitment to the community instead of just a marketable commodity.
‘Philosophy of Care’
“It is the philosophy of care rather than the Catholic issue. We are not there solely to serve Catholics but to serve everyone in a loving and caring way.”
Chamison also said that the sisters got approval from the church hierarchy in the Vatican because the proposed sale involved church property.
“We had to convince Rome that we had a reasonable business purpose to it and that the sisters’ mission will not suffer as a result. The approval required outside evaluation and reviews and a letter of recommendation from the local archbishop (Roger Mahony).”
Although the sale to Summit is expected to go through, if negotiations should fail, St. Joseph would open talks with other profit-making organizations, Chamison said. “We are taking every step possible to prevent closure,” he said.
When the hospital changes hands, Chamison said, the five nuns at St. Luke will be relocated to other hospitals owned by the order.
However, the future is uncertain for most of the hospital’s 630 employees. “Typically we evaluate all the personnel and our preference is to keep the good people in place,” Summit’s Herzig said.
‘Hard to Deal With’
“Change and the unknown are hard to deal with so we are all concerned,” said one long-term St. Luke employee.
“I will be here through the transition, but I am not prepared to make a long-term decision,” said the hospital’s top administrator, James Quackenbush, who has been president and chief executive officer for 15 years.
Most of the doctors associated with St. Luke are pleased, said Dr. William J. Fennessy, chief of staff, because there will be an infusion of funds into the hospital.
“While very few doctors are tied into St. Luke alone, we all plan to continue our support,” Fennessy said. Most of the doctors are also affiliated with Huntington or Methodist Hospital of Southern California in Arcadia.