St. Vincent losing millions, causing management turmoil.

Another Los Angeles hospital is having serious financial problems.

This time it's St. Vincent Medical Center, the city's oldest hospital and a leader in transplant operations and other sophisticated procedures that also has a reputation as a haven for poor patients seeking care.

The Westlake non-profit lost $11.1 million in the year ended June 30 and is on track to lose even more this year. The losses have caused turmoil in St. Vincent's executive ranks, but so far have not led to any cuts in services.

The hospital's chief executive and chief financial officer departed last year, and temporary administrators are in their place until a new chief executive, Gustavo Valdespino, starts next month.

A variety of factors are being cited for the problems, including St. Vincent's break from the Catholic Healthcare West hospital network, as well as higher costs that have outpaced revenue growth.

"We are still in the trenches trying to figure this out," said Robert Issai, interim chief executive of the Daughters of Charity Health System, the seven-hospital system of which St. Vincent is now a member.

Several other local hospitals have had financial problems recently, including Santa Teresita Hospital in Duarte and Century City Hospital, owned by Tenet Healthcare Corp., which is slated for closure in April. St. John's Health Center in Santa Monica laid off 10 percent of its staff, citing rising nursing wages and other factors.

Health insurers have raised reimbursements, but that doesn't solve the problems. These include the increased costs stemming from nurses' salaries, new technologies and a mandate to seismic retrofit. "I think what you are seeing is not the end of the road," said Jan Emerson, vice president of external affairs for the California Healthcare Association, an industry trade group.

Ownership changes

St. Vincent, in particular, has been through upheaval as a result of ownership changes, though it has always been sponsored by the Daughters of Charity order since its founding in 1856.

In 1995, the Daughters of Charity joined with other Catholic hospital owners to form Catholic Healthcare West in an attempt to gain heft and achieve operational efficiencies, but the San Francisco-based system lost money. Officials decided to centralize further, prompting the Daughters of Charity to pull out and form its own seven-hospital system in 2002.

The changeover makes it hard to track exactly when St. Vincent began losing money. In calendar 2001, the hospital earned as much as $8.7 million as part of Catholic Healthcare West, according to financial statements filed with the state. But in the first six months of 2002, the hospital posted a $1.2 million operating loss as part of the new system. Investment gains lowered the net loss to $418,000.

In its first full year as part of the Daughters of Charity system, ending in June 2003, St. Vincent lost $12.3 million on an operating basis, and $11.1 million after adjustments. Revenue rose by 5.8 percent but expenses grew by 12 percent, according to figures provided by Issai.

Between last July and November, St. Vincent lost another $5.8 million, and could lose as much as $15 million unless changes are made, said Issai, whose permanent job is chief financial officer of the Sisters of Charity system.

Among the problems found by the interim management so far: the hospital's billing system apparently atrophied under Catholic Healthcare and was failing to send out millions of dollars worth of bills in a timely manner. This problem has been rectified, Issai said.

Another major issue is the cost of staffing levels that are about 10 percent higher than the industry average. Part of that is explained by St. Vincent being a center for kidney transplants, as well as doing heart, liver and other organ transplants. All of which demand higher staffing.

Bain Farris, a principal with health care consulting firm HealthEvolutions, who is serving as interim chief executive, said that rather than cut back staff or services, one answer could be to offer more "bread and butter" procedures that cost less and pay more, such as hip and knee replacements. "We do all these great high end services, and do them very well. But we have not taken care of more basic services," he said.

The hospital is also considering opening an emergency room as a way to drive more patients through the door.

Some other problems may be harder to fix, such as rising workers' compensation insurance rates, which cost the system $13 million in the last fiscal year, about $5 million more than the hospitals spent last year.

Despite the problems, St. Vincent had positive cash flow last year of $4 million, since equipment depreciation lowered net income by $14.7 million, Issai said. Also, the seven-hospital Daughters of Charity system earned $34.8 million in the 2002-2003 fiscal year, providing a cushion for St. Vincent if it should need it.

Dr. Michael Stefan, a former chief of staff who now sits on the hospital board, said the losses were disheartening but that he believed the hospital was "fundamentally sound" and the problems could be worked out.