PeaceHealth brings county its past of peace, power

When PeaceHealth comes to Vancouver, it will bring more than new jobs and new leaders to the region’s landscape of health care companies.

It will bring its past, too.

It has lasted for 120 years, starting with two members of the Sisters of St. Joseph of Peace taking a train to Bellingham in 1890 to help those in need, and stepping into the current decade with revenues topping $1.3 billion, and outposts dotting Washington, Oregon and Alaska.

In recent years, it has locked horns with another hospital over accusations that it engaged in “predatory” and monopolistic actions.

It has also won accolades, including for high-quality patient care in Cowlitz County.

But the nonprofit could write its biggest and most telling chapter yet in Vancouver, where it plans to take one of the largest employers in the region — Southwest Washington Medical Center — under its umbrella, and where it aims to relocate its corporate headquarters and a contingent of support staff, bringing 340 new jobs with it.

The merger of PeaceHealth and Southwest is being reviewed by federal and state agencies, including the U.S. Federal Trade Commission and the Washington Attorney General’s Office. Officials at both hospitals say they expect the deal to wrap up by the end of the year, although it could happen as early as this month. It would create a nonprofit health company with roughly 15,000 employees, eight hospitals and nearly $2 billion in revenues.

These are significant undertakings and could spark changes in the local economy for years to come. And Southwest opened the door to these changes when it broached the subject of a merger with PeaceHealth in late 2009. It was the only way PeaceHealth would consider acquiring Southwest.

“We only go where we are invited,” said Peter Adler, senior vice president and chief strategy officer for PeaceHealth.

Legal battle in Oregon

But once it puts down roots in a place, history suggests that PeaceHealth isn’t modest in its drive for success.

Its aggressiveness entangled it in a protracted legal battle in Eugene, Ore., where PeaceHealth, which operates two Sacred Heart hospitals in the area, squared off against McKenzie-Willamette Medical Center.

In January 2002, McKenzie-Willamette sued PeaceHealth, alleging the Catholic-sponsored nonprofit used its dominant market power to prevent its smaller competitor from signing gainful contracts with health insurers. PeaceHealth is “dangerously close” to achieving market domination because of its “market share, high barriers to entry, the lack of capacity of its competitors, its technological advantages” and its “acquisition of or affiliation with physician clinics and multiple locations,” Portland attorneys Tom Triplett and Kelly Hagan argued in court documents.

The legal battle dragged on for the next six years, with the rival hospitals each scoring victories. In 2003, PeaceHealth was ordered to pay McKenzie-Willamette $16.2 million after a jury found that PeaceHealth intentionally sought to harm the smaller hospital. But that judgment was later nullified when the 9th U.S. Circuit Court of Appeals overturned the verdict and shipped it back to the trial court.

In September 2008, the legal duel finally ended when PeaceHealth and Cascade Health Solutions, which had by then bought a stake in McKenzie-Willamette and taken on its interest in the lawsuit, settled. As part of the settlement, PeaceHealth paid an undisclosed sum to Cascade, according to the Register-Guard newspaper of Eugene. Both hospitals refused to comment on the financial details of the deal, according to the Register Guard. They also declined to say whether PeaceHealth admitted any wrongdoing.

Ed Whitelaw, a University of Oregon economics professor and chairman of the board of ECONorthwest, a Eugene-based economics consulting firm, provided expert testimony on behalf of McKenzie-Willamette in its case against PeaceHealth.

“We found evidence of anticompetitive behavior in the data,” he said.

Adler, the senior vice president and chief strategy officer for PeaceHealth, said the lawsuit predates his time with PeaceHealth. Nevertheless, one important thing to take away from the legal tussle is this, he said: “PeaceHealth was not found guilty of anything in that suit.”

Not new to the region

Although PeaceHealth will be new to Vancouver, it’s not new to Southwest Washington. Longview’s St. John Medical Center, which PeaceHealth has run since 1943 when it was still known as Sisters of St. Joseph of Peace, highlights the nonprofit’s ability to grow despite the economic recession. It also underscores the praise PeaceHealth has garnered for doing good work.

In the past seven years, PeaceHealth has spent tens of millions of dollars on renovating and modernizing St. John, a 346-bed hospital that is the top employer in Cowlitz County with roughly 1,800 workers. In fiscal year 2009, it collected about $214 million in revenue.

The hospital’s biggest project — a $46 million renovation of its patient tower completed last year — brought full upgrades to everything from the intensive care unit to the birthing center. Even hospital staff chipped in, volunteering $250,000 from their paychecks to the project, according to Jeane Conrad, project manager for St. John.

“It was a real team effort.”

In April, PeaceHealth opened St. John’s new Ocean Beach Highway primary care clinic. And in July, it broke ground on a new, 18,593-square-foot medical office building, intending to expand its primary care staff and to open the facility in summer 2011. Sarah Cave, vice president of strategy, innovation and development for PeaceHealth’s operations in Southwest Washington, said the nonprofit has done all of this despite lower revenues linked to the weak economy.

“PeaceHealth has a pretty deliberate growth strategy,” she said.

It also boasts awards for its Longview hospital: In June, the research firm Cleverly + Associates named St. John one of the top 100 hospitals in the United States. The firm bases its rankings on a “community value index,” which measures hospital performance in four main areas: financial strength and reinvestment; cost of care; pricing; and quality of care.

It was the fourth year in a row that St. John received such a ranking. This year, it was one of only four hospitals in Washington to make the top 100 list. The others were Virginia Mason Medical Center in Seattle, Cascade Valley Hospital in Arlington and Providence Holy Family Hospital in Spokane.

The big picture

Although St. John Medical Center reveals an organization determined to invest and grow, PeaceHealth has not gone unscathed by the Great Recession.

In fiscal year 2009, PeaceHealth had revenues of $1.3 billion, up 12 percent from fiscal year 2008. Nevertheless, the recession delivered blows to the nonprofit’s investments. After registering revenues over expenses of about $103 million and $104 million in fiscal years 2007 and 2008, respectively, the organization’s expenses overtook revenues by about $97 million in fiscal year 2009.

The majority of those losses were due to declines in the value of various investment securities and interest rate swaps associated with bonds held by PeaceHealth. Adler, the senior vice president and chief strategy officer for PeaceHealth, said the paper losses are not unusual, as they echo those experienced by other companies rocked by the recession.

Adler said the company’s underlying financial picture is strong. As evidence of this, he said, PeaceHealth expanded its operations in Eugene in 2008 and will open a new hospital on San Juan Island in 2012.

When PeaceHealth issued about $95 million in revenue bonds in October 2009, ratings agencies Standard & Poor’s and Fitch assigned the bonds scores of AA- and AA, which indicate a financially strong organization that might face challenges in the future.

Cave, the vice president for PeaceHealth’s operations in Southwest Washington, said that after PeaceHealth and Southwest seal their merger she expects the organizations will initially handle their collective resources conservatively. It will likely be several years out before new projects or programs are undertaken, she said.

But there are plans.

Vancouver in sight

One possibility is for PeaceHealth to invest in a single efficient electronic records system for both hospital groups and to spread the cost across the entire combined organization. Adler said other projects likely will include expanding the company’s “bridge assistance” program to include Clark County. The program is a charity care policy PeaceHealth uses to help low-income people pay their medical bills and to get financial counseling.

PeaceHealth also plans to expand Southwest’s “tremendous family practice and residency training program” in Vancouver, Adler said, and to replicate that program in other communities the nonprofit serves. Moreover, both PeaceHealth and Southwest possess sophisticated medical labs, Adler said, and “we’re going to put together those two lab systems to really become the premier laboratory system in the Northwestern U.S.”

PeaceHealth has been doing its homework on Vancouver. The city has been on the company’s radar since at least July 2009, before a merger with Southwest had even come up.

At the time, PeaceHealth was looking for a place to set up some of its back-office operations in what it described as a “shared services center,” which would house those operations. It liked what it saw in Vancouver, as an Aug. 11 letter from PeaceHealth President Alan Yordy to city officials shows.

“Last July, we met with a number of community officials after a year of evaluation of Northwest communities that could host a Shared Services Center,” Yordy wrote. “Our studies concluded that we needed a community that would be attractive to young families and provide a long-term stable source of well-qualified employees. Vancouver came out #1 on the consultant’s list when comparing communities in Washington and Oregon.”

Initially, PeaceHealth was going to put consideration of Vancouver on hold because it didn’t have any hospitals or clinics in town.

“Then we received a call from (Southwest) late in 2009 and were selected for in-depth discussions in March,” Yordy wrote.

Since then, the stakes have grown. Now PeaceHealth plans to relocate its Bellevue headquarters and some support staff to Vancouver and house them all in a shared building. PeaceHealth expects most of the movement of jobs to the new facility will occur between 2012 and 2014.

Adler calls PeaceHealth’s plans for Vancouver a “pivotal” moment for the organization. If the nonprofit’s past is any indication, it will do everything within its considerable power to make the most of it.