Benefis Health System is a nonprofit independent health care system based in the city of Great Falls in the state of Montana in the United States. The system owns 516-bed Benefis Hospital, Sletten Cancer Institute, Benefis Mercy Flight (a fixed-wing and helicopter emergency medical evacuation service), 146-bed Benefis Extended Care Center (for both rehabilitation and long-term nursing care), 12-bed Peace Hospice of Montana, Benefis Quick Care (an ambulatory care facility), and Benefis Physician Associates."Benefis Boasts of Being State's Largest Hospital." Great Falls Tribune. March 28, 2010. As of March 2011, it was Montana's largest hospital."Benefis is State's Largest Hospital." Great Falls Tribune. March 27, 2011.
Formation The forerunner of Benefis Health System was Benefis Healthcare. Benefis Healthcare was formed when 145-bed Columbus Hospital (a Catholic Church-owned hospital founded in 1892) and 339-bed Montana Deaconess Medical Center (a hospital founded in 1898 by the Methodist Episcopal Church) merged in July 1996.Wilmot, Paula. "Clinic Buys Surgical Hospital." Great Falls Tribune. January 26, 2006. The two hospitals first considered merging in 1994, but a traditional merger was held up by prolonged disagreements (which lasted 20 months)Shinkman, Ron. "Monopoly Is For the Benefis of None." Modern Healthcare. February 8, 1999. with state and federal antitrust officials over the legality of the merger.Shinkman, Ron. "Great Flap in Montana." Modern Healthcare. September 15, 1997.
The hospitals finally merged in July 1996 under a so-called "certificate of public advantage" (COPA), a provision in Montana state antitrust law which permitted hospitals to merge prior to examination of the merger under state antitrust laws, provided that the state issued a certification that the merger met public need (the COPA) and further provided that the merging hospitals agreed to certain conditions imposed by the state.American Bar Association, p. 152-153. The U.S. Federal Trade Commission dropped its objections to the merger after the COPA was signed.Shinkman, Ron. "For the Benefis of One: State Lets Montana System Expand on Local Monopoly." Modern Healthcare. January 5, 1998. Columbus and Deaconess hospitals were the first hospitals in the United States to merge under a state COPA statute."Regional News: West." Modern Healthcare. September 9, 1996. The name "Benefis" was chosen because, although it was not a word found in any dictionary, it sounded similar to words such as beneficence, beneficial, and benefit.
A number of conditions on the merger were required by both state and federal governments. These included a limit on excess revenues ("profits"), that $86 million in cost savings be passed on to consumers, and a prohibition on certain anti-competitive behaviors.Snow, Charlotte. "Montana Blues, Clinic Form Joint-Venture Health Plan." Modern Healthcare. October 14, 1996. Another restriction prohibited Benefis from entering into any joint ventures which would permit existing services to be transferred to the joint venture (thus enabling Benefis to skirt the COPA agreement).
The merged entity was originally named Benefis Healthcare.
Corporate history Just a year after its formation, Benefis challenged the construction of specialty surgical centers in Great Falls. Both the Central Montana Surgery Center (an ambulatory care facility founded in 1996 by local Great Falls businessman Harold Poulsen) and the Great Falls Clinic (a physician-owned group practice founded in 1917) announced they intended to build outpatient surgery centers in the city. The Clinic had explored building its center as a joint venture with Benefis, but the COPA agreement prohibited it. Both companies sought a certificate of need (CON) for their surgery centers, but Benefis challenged these filings. Both companies then altered their plans, saying they would build specialty surgical centers instead (as permission was not needed under the state's CON law). The state subsequently approved both plans. Benefis filed suit in state district court as well as filed a protest with the state over the decision not to seek a certificate of need for either proposed facility.
In late December 1997, Benefis, Central Montana Surgery Center, and the Great Falls Clinic agreed to settle their differences out of court and to drop their administrative dispute with the state of Montana. Central Montana Surgery Center and the Great Falls Clinic agreed to abandon plans to build surgical hospitals and to build outpatient surgery centers instead. Benefis agreed to close its own outpatient surgery center, and become a 49 percent owner in the Clinic's center. The Montana State Attorney General's office, which approved the settlement, said Benefis would be permitted to charge the costs of closing its center to the $86 million in cost savings owed to the community.
Benefis reported excess revenues of $7 million on income of $140 million in 1997. In early 1999, Benefis announced it was suffering serious financial losses that were imperiling its ability to provide health care. In January 1999, the company reported a loss of $3 million on revenues of $128 million in 1998, and projected a doubling of that loss in 1999 with no appreciable growth in revenues. Benefis claimed its COPA agreement did not account for the costs of consummating the merger of Columbus and Deaconess hospitals, and did not provide for adjustments to the agreement in the event competition forced changes to its business plan. The company cut costs by $17 million, saw construction costs increase by $17 million, and had not yet implemented any staff reductions. Benefis predicted losses totaling $25.7 million by 2003 unless changes to the COPA were made.Shinkman, Ron. "Big Benefit for Benefis." Modern Healthcare. January 3, 2000. After two months of negotiations, the state amended the COPA to allow Benefis to raise prices faster than originally permitted (generating $12 million in revenues), and reduce cost savings returned to the community by $39.5 million.Shinkman, Ron. "Montana System Gets Big Break From State." Modern Healthcare. April 12, 1999. The term of the COPA (its initial terms were to end in 2006) was not changed.
In January 2000, Benefis reported that it had generated $9.1 million in excess revenues in 1999 because of the changes. The company also doubled its charity care expenditures from $2 million to $4.8 million, inpatient prices were 6 percent lower than pre-merger prices, and outpatient prices were 15 percent lower than pre-merger prices. That same year, Benefis received a $7 million gift from a group of anonymous donors, permitting it to build a hospice (now known as Peace Hospice) near its east campus."Regional News: West." Modern Healthcare. May 1, 2000. In August 2000, Benefis signed an agreement with Treasure State Healthcare Network, an independent practice association (IPA) representing about 30 percent of the physicians practicing in Great Falls.Becker, Cinda. "Mont. Hospital, IPA Form New Network." Modern Healthcare. August 28, 2000. The agreement created a 50-50 for-profit partnership which marketed Benefis and the IPA to large employers and health care trusts.
Despite these changes, Benefis faced continuing financial pressures. The company had excess revenues of $3.3 million in 2000, but said it would only break even in 2001."In Brief." Modern Healthcare. February 12, 2001. It sought a second revision to the COPA agreement, but the state refused to reopen the terms.
In 2001, Benefis again sought state permission to revise the terms of the COPA. That year, Harold Poulsen, owner of Central Montana Surgery Center, announced he would build a 20-bed, , $5.3 million inpatient specialty surgical hospital (to be called Central Montana Surgical Hospital).Taylor, Mark. "Benefis Tries Again." Modern Healthcare. August 20, 2001. (Instead, Poulsen ended up transforming his existing outpatient center into a hospital.)Wilmot, Paula. "Clinic, Benefis Expand Reach." Great Falls Tribune. February 19, 2006. Benefis sought to reopen the COPA before Poulsen's announcement, but its pleas became more urgent after the competitor's plans were announced. But once more the state turned down the request.
In October 2005, Benefis sought to disaffiliate from Providence Services. A dispute between the local health system and its parent organization first arose in 2003, when Providence Services asked Benefis to change its corporate constitution and bylaws to permit the parent organization to veto any joint venture that the local system might enter into, review and veto capital spending plans, and power to reject any chief executive officer the system might attempt to hire.Evans, Melanie. "Systematic Attraction." Modern Healthcare. February 19, 2007. Benefis refused, and in 2004 Providence Services declined to issue a corporate bond that would have financed construction of a new cancer center in Great Falls. According to Standard & Poor's, a bond rating agency, Benefis contributed 16 percent of Providence Services' total assets, 17 percent of its operating revenues, and 30 percent of its net operating income. In the last week of December 2005, Benefis opened its $20 million Sletten Cancer Institute.