No margin, no mission.
That’s how health care leaders in the nonprofit sector often describe their dilemma. For most, the economics of the health care industry have required nonprofit hospitals and long-term care providers to wield pencils as sharp as any required in the commercial sector.
Ironically, in an industry that is generally averse to risk-taking, balancing margin and mission has often meant bold initiatives that run counter to conventional wisdom and a persistence that could tire the most resourceful executive in the private sector.
So it’s little surprise that when William Day proposed the idea of The Village at St. Barnabas in the late 1970s, it wasn’t immediately embraced with open arms by potential lenders.
Day, who had taken the helm as president and CEO at St. Barnabas in 1974, knocked on lenders’ doors 21 times before PNC Bank agreed to bankroll the $16 million project. Lenders no doubt were more tight-fisted at that time, but the example might say as much about Day’s determination as it does about the conservatism of the financial community he was trying to convince to finance The Village, which opened in 1980.
In retrospect, in the context of the exponential growth of the senior population and the demand for a wider range of options for their housing needs rather than simply nursing homes, The Village doesn’t seem like such a risky proposition. The idea was to create a 252-apartment independent living community for seniors, complete with amenities like an enclosed mall with services including a post office, beauty salon and recreational facilities.
At the time that Day and the leadership at St. Barnabas were considering the project, however, it was a novel idea in Western Pennsylvania and a big step for St. Barnabas, an institution that started out with a few beds and for most of its history existed as a modest nonprofit offering services primarily for a destitute population. And while the North Hills and the lower reaches of Butler County were demonstrating promise for growth, they had yet to develop into the thriving communities they have become.
The financial challenge
Long-term care organizations like the 600-employee St. Barnabas Health System are facing tremendous financial challenges. While government programs can provide a steady revenue stream to cover some of the costs, the funds can get cut during state budget crunches.
When that occurs, providers with large numbers of medical assistance residents need to find ways to make up for the shortfall. As a result of proposed reductions in federal funding, for instance, Pennsylvania’s nursing homes could lose $120 million in reimbursements in 2003, and double that in 2004, according to Alan Rosenbloom, president and CEO of the Pennsylvania Health Care Association. The organization represents 325 long-term care and senior service providers in the state.
The pressure on care providers is increasing as the population ages. The over-85 population is growing at the fastest rate, “and that’s the population that’s the most needy in terms of these services,” says Rosenbloom.
For for-profit homes, the objective is to attract as many patients as possible with private insurance or the means to pay for care. And as for-profit facilities reach capacity, the nonprofits will be under greater pressure to provide services to the poorer patients.
Understandably, St. Barnabas has made a conscious effort to avoid the pitfalls of too much reliance on public funding.
“We’ve tried not to be dependent on government funding,” says Day. “With a stroke of the pen, the money goes away.”
That doesn’t mean St. Barnabas doesn’t care for the poor. Indeed, a substantial number of its nursing home residents are covered under Medicaid, the state’s medical assistance program, and the system provides more than $4 million in free care to residents each year. Medicaid, however, pays nursing homes $14 a day less than their actual costs, says Rosenbloom, a difference the provider has to make up.
For nonprofits like St. Barnabas, that gap is closed by fund-raising and the for-profit entities they operate.
The fund-raising piece
St. Barnabas has managed to cushion itself from the negative effects of changes in government reimbursement polices. But while it doesn’t depend on the public sector for its financial lifeline, it’s not immune to the ups and downs of an uncertain economy.
The fortunes of its endowment rise and fall with shifts in the economy and declining interest rates, and in lean times, when the demand on its services tends to peak, donors are tightening their belts and pulling back on charitable giving.
St. Barnabas has developed a variety of programs to raise funds and attract philanthropic gestures. Its Founders Day celebration brings in big name speakers to raise money for its free care fund.
The event has featured speakers including former President Gerald Ford, entertainer Steve Allen, television personality Art Linkletter, Fred Rogers of “Mister Rogers’ Neighborhood” fame and former First Lady Barbara Bush. St. Barnabas’ largest single event of the year took in $77,000 last year.
The St. Barnabas Golf Tournament raised $60,000 in 2001, the 5K Run/Walk netted $19,000 and employee contributions to the Special People Fund brought in $16,000. Presents for Patients, launched 18 years ago, provided nearly 20,000 gifts to patients in 225 nursing facilities in four states.
The St. Barnabas Leadership Conference held in September attracts hundreds of the region’s business leaders to discuss the most pressing issues and opportunities facing Southwestern Pennsylvania’s business community. While not a fund-raising event, it introduces influential business leaders to St. Barnabas and reinforces its image as a community service leader in its own right.
Expanding senior housing
The landscape at St. Barnabas, both literally and figuratively, has changed substantially since The Village took in its first residents, and Day has overseen $75 million in new construction and capital improvements. St. Barnabas renovated a building on the campus and converted it into a health center in 1972 to serve its nursing home patients as well as the community at large, and now sees 35,000 patients a year.
In the early 1990s, St. Barnabas acquired the nearby Valencia Woods Nursing Center from Pittsburgh Mercy Health System and added 90 beds to the facility. Recognizing a growing demand for housing for younger residents, the system is developing The Woodlands at St. Barnabas, a carriage house community that targets residents 55 and older.
The community is filling as fast as the buildings are going up and has been so successful that St. Barnabas will devote some of the 75 acres it has acquired over the past five years to additional carriage house development.
Despite those successes, the notion of Washington Place, a 22-apartment senior living facility that opened this year, met with a dose of skepticism. The building, the Washington Elementary School, a closed and outdated facility owned by the Pine-Richland School District, was too close to the road and situated on too small a parcel of land to continue to serve as a school.
Residents raised objections but ultimately agreed to St. Barnabas’ plan to convert it to senior living quarters. Day persuaded the St. Barnabas board to convert the building’s gymnasium into the Kean Theatre, a $2.1 million state-of-the-art facility that can be used for community and fund-raising events, entertainment for residents and as a new home for its annual leadership conference.
And there are substantial plans to continue to expand St. Barnabas. A $100 million expansion scheme, Plan 2000, calls for nearly doubling the size of the campuses and adding more than 2,000 retiree and patient residences.
Ultimately, while St. Barnabas Health System invests in ventures that bolster its margin, accumulating excess revenue over expenses is not an end in itself. The real objective, Day says, is to operate a system that produces funds to fulfill the system’s charitable mission.
“We spend a lot of time on the planning process,” says Day. “We have to try to use our heads to help people.” How to reach: St. Barnabas Health System, www.stbarnabashealthsystem.com; Pennsylvania Health Care Association, www.phca.org
