Adventist Health Business Information, Profile, and History

Company Perspectives:

Adventist Health is a family of caring people reaching out to those in need. We follow Christ's example of servanthood, as we promote physical, mental, and spiritual health and healing. Through creative partnerships, we enhance the quality of life of the communities we serve.

History of Adventist Health

Adventist Health is a non-profit healthcare system affiliated with the Seventh-Day Adventist Church and part of an international network of 160 Adventist facilities. The organization's headquarters is located in Roseville, California, where Adventist Health has no facilities, the site chosen because it provided a central location for most of the system's 15 California hospital. All told, Adventist Health controls, manages, or leases 20 acute-care hospitals, totaling more than 3,200 beds, located in the states of California, Hawaii, Oregon, and Washington. In addition, the organization operates Adventist Health/Home Care Services, four hospices, nine personal care agencies, six home medical equipment agencies, and five home infusion therapy services. Despite the financial difficulties facing hospitals in recent years, Adventist Health has been able to succeed as a niche player, concentrating on smaller hospitals in single-hospital markets. It also has a solid reputation for providing consistent services and adhering to the mission laid out by the Adventist Church.

Seventh-Day Adventist Movement Established in 1800s

The Seventh-Day Adventist Church grew out of the efforts of Baptist preacher William Miller, a former military man who in the 1830s was instrumental in an evangelical wave known as the "great second advent awakening." According to Miller's reading of biblical prophecy, Jesus would return sometime during 1843 or 1844. His followers soon pinned down the Second Coming to October 22, 1844, a date which ultimately became known as the "Great Disappointment" when Jesus failed to appear. The movement quickly dwindled to just a handful of followers, among them a 17-year-old girl named Ellen Harmon who helped reinvigorate the Adventists when she experienced a vision of its people traveling to the city of God. She married an Adventist preacher named James White and the couple became instrumental in the growth of the church. As Ellen G. White, she also became an author, publishing her first book in 1851. In 1860, several Adventist congregations assumed the name Seventh-Day Adventist and formally organized a church in 1863. During that same year, White had another vision, this one emphasizing the connection between physical health and spirituality and the importance of proper diet, exercise, and natural remedies. Health, which had never been an Adventist concern, now became a focal point.

At the behest of White, in 1866 the church established the Western Health Reform Institute in Battle Creek, Michigan, to care for the sick as well as disseminate health instruction. At first it was little more than an eight-room clinic. Renamed the Battle Creek Sanitarium in 1877, when it was under the direction of Dr. John Harvey Kellogg, it would become as famous as some of its wealthy clientele, which included the likes of J.C. Penney, Henry Ford, Thomas Edison, Amelia Earhart, William Jennings Bryan, Dale Carnegie, and John D. Rockefeller. Kellogg had moved to Battle Creek at the age of four and was raised in a Seventh-Day Adventist family. White and her husband recognized that Kellogg held great potential and groomed him from an early age to take over the institute. They helped to finance his education at New York's Bellevue Medical College, from which he graduated in 1875. Kellogg then became medical superintendent of the Institute and quickly put his stamp on the operation, changing its emphasis from hydrotherapy to medical and surgical treatment. He also coined the word "sanitarium" and formulated what he called was the "Battle Creek Idea," an emphasis on good diet, exercise, proper rest, good posture, and the value of fresh air. Kellogg was not paid for his work at the Sanitarium, earning his income from the royalties of some 50 books he authored in his lifetime. He also made money from the manufacture of breakfast cereal following the discovery of a way to make crispy wheat and corn flakes. Acting as his right-hand man in building the sanitarium and the cereal business for more than 20 years was his disgruntled brother, Will Keith Kellogg, who patiently bought up shares of the institute's corn flake business until he gained control. He then broke from his brother and in the early 1900s applied the Kellogg's name to the cereal, creating one of the world's most recognizable trademarks as well as a successful international company. While the Kellogg Company prospered throughout the twentieth century, the Battle Creek Sanitarium reached its high water mark in the 1920s. After the stock market crash of 1929, many of the sanitarium's clientele could no longer afford their annual pilgrimage, and the fortunes of the institution began to fade. In 1942, the main building was sold to the federal government, and a year later, at the age of 91, John Kellogg died.

Adventist Health Forms from 1980 Merger

The popularity of the Battle Creek Sanitarium in the 1800s led to the foundation of other Adventist sanitariums around the country, which numbered 27 by the turn of the century. Over the next 50 years, the sanitariums evolved into hospitals, forming the backbone of the Adventists' medical network. The medical headquarters of the church also moved from Battle Creek to Loma Linda, California, site of another sanitarium founded by Ellen White. In the 1960s, ownership of the hospitals was transferred to local Adventist organizations known as conferences. In 1972, the church decided to centralize the management of its healthcare institutions on a regional basis, forming Adventist Health Systems. Conferences ceded control to the system, forming several entities at the union (multi-state) level, based on the way the church itself was organized. In the North Pacific Union of the Adventist Church, Northwest Medical Foundation was established, and in the Pacific Union region Adventist Health Services was created. The Western divisions merged in 1980 to create Adventist Health System/West (which in 1995 shortened its name to Adventist Health). Originally the headquarters for Adventist Health was located in Los Angeles, close to some of the division's largest institutions. Wary that small facilities might be neglected, management moved its operations in 1982 to more centrally located Roseville, California, a city where Adventist Health had no healthcare presence at all. In 1985, a headquarters was built in Roseville to provide financial management for system hospitals and perform other administrative functions.

In 1982, the regional operations formed a national organization, Adventist Health System/U.S., which management called the largest not-for-profit, multi-institutional healthcare system in the United States. The purpose of consolidation was to achieve economies of scale, but it soon became apparent that AHS/US also brought with it the problem of ascending liability for the church. Bankruptcy of any division in AHS/US, or a lawsuit, held the potential of putting all of the church's assets at risk. Legal counsel for the church convinced its leadership that ascending liability made it imperative that the consolidated healthcare organization be dissolved. A system reorganization was completed in 1991, and regional divisions began operating on their own.

In 1990, Adventist Health was sued by the Arizona conference of the Seventh-Day Adventist Church in connection with a long-term dispute over Tempe Community Hospital. The suit alleged that Adventist Health had been hired to manage the facility but improperly took control, sold the hospital, and kept all the proceeds. Moreover, Adventist Health was accused of continuing to charge the conference $15,000 per month for management fees for more than seven years after the sale of Tempe Community. When the matter was finally resolved in 1994, the courts ruled in favor of Adventist Health. This litigation, as well as other law suits with AHS divisions, was an indication of an ongoing rift between the church and the healthcare institutions it had founded. Increasingly, AHS entities began to operate like any other hospital organizations, although continuing to maintain an affiliation with the church. More outspoken Adventist church members, however, expressed a sense of betrayal, maintaining that the church's medical work had been intended as an instrument for spreading the church's beliefs. According to these dissidents, AHS operations were now in business simply to stay in business, as well as to lavishly reward the executives who ran them.

Whether or not the criticism was valid, Adventist Health took steps to grow its operations in the manner of a secular enterprise. In 1988, it acquired Ukiah General Hospital, in California's Mendocino County, for $5.9 million. Already operating Ukiah Adventist Hospital as well as another facility in nearby Willits, Adventist Health came under scrutiny by the Federal Trade Commission (FTC), which was concerned that the organization had violated antitrust laws governing non-profit companies because it now controlled 17 percent of the Ukiah healthcare market. The matter took five years to resolve, and in the end the FTC decided that there was insufficient evidence that the acquisition of Ukiah General had harmed area consumers. This conclusion had national ramifications, opening the door for more hospital mergers and acquisitions. With the advent of managed care, which greatly reduced inpatient revenues, many smaller-market hospitals, by necessity, sought out partners like Adventist Health.

Strategies for Prosperity in the Mid-1990s and Beyond

In the mid-1990s, Adventist Health ran 18 hospitals with 2,800 beds, 18 home health agencies, four hospices, and eight home care services, in addition to various clinics, outpatient facilities, and medical foundations. Eleven of its hospitals were located in California, with another four in Oregon and single facilities in Washington, Utah, and Hawaii. Adventist Health was older and more stable than most healthcare operations in the West, but it too was forced to contend with the rise of managed healthcare organizations that paid fixed rates for care. In 1994, Adventist Health established a managed care contracting enterprise, Pacific Integrated Healthcare, in order to help member Southern California institutions negotiate better rates in a prepaid healthcare environment. Adventist Health also took part in a similar initiative for Fresno-based Community Hospitals of Central California, called Center California Health Partners, which in turn was linked to the California Health Network, consisting of 81 hospitals and 50 physicians' organizations. While other area healthcare organizations were losing money, in 1994 Adventist Health reported net revenues of $916 million and net income of $90.2 million. Results fell off somewhat over the next two years, but the organization remained relatively healthy. Nonetheless, it was forced to close its Utah facility, Monument Valley Hospital, in 1996.

In the mid-1990s, Adventist Health began to focus on strengthening its position in California's Central Valley region. A long-term effort to acquire the 156-bed Delano Regional Medical Center was dropped in 1997, but the organization was successful elsewhere. In April of that year, it assumed management of the 57-bed Selma District Hospital in Fresno County and immediately began working with the board of directors to acquire the 35-year-old institution. The deal was not completed until two years later, following approval from area voters in a special election held in June 1999. In the end, Adventist Health agreed to assume the hospital's outstanding liabilities of $4 million in addition to a 1984 $4.2 million bond taken out for expansion. Adventist Health further solidified its presence in the Central Valley area with the acquisition of Clearlake's 32-bed Redbud Community Hospital and 49-bed Central Valley General Hospital, located in the town of Hanford. In the era of managed care, these facilities were forced to find a larger partner in order to simply survive and continue providing healthcare in their rural communities. While often serving as a savior of such institutions, Adventist Health was not immune to financial pressures. In 1998, it was forced to institute some cost-cutting measures, including the closure of two skilled nursing units and cutbacks in its home care program. It was also forced to cancel some HMO contracts and renegotiate others. Adventist Health posted net income of $20.5 million in 1998, the result of $25 million in investment income, so that the organization actually suffered a $4.5 million operating loss for the year.

Adventist Health also faced a change in leadership in 1998 when its president, Frank Dupper, announced his retirement. The board decided to look within the ranks of the organization for a replacement and quickly settled on Donald Ammon, who had been an executive vice-president with Adventist Health for 18 years and whose experience in the healthcare field dated back to 1964. Moreover, Ammon and his wife were lifelong members of the Seventh-Day Adventist Church. He assumed his new position on January 1, 1999, and faced a challenging healthcare industry environment at the close of the century. Recognizing that regional delivery systems and medical foundations that had worked well in the 1990s were no longer efficient, Ammon scrapped them and returned to a more centralized approach that resulted in significant savings. While keeping an eye on costs, he also initiated building efforts throughout the system, providing enhanced earthquake safety at many facilities, and also looked to add more private rooms and deliver expanded services. Although a solid enterprise, Adventist Health faced an uncertain future, especially in light of Medicaid cuts and state budget deficits that were likely to have an adverse impact on revenues. The organization would have to remain vigilant about costs and enhancing income, while at the same time attempting not to lose sight of the century-old mission of the Seventh-Day Adventist Church.

Principal Competitors: Catholic Healthcare West; Tenet Healthcare.

Chronology

• Key Dates:
• 1863: Seventh-Day Adventist Church is organized.
• 1866: Western Health Reform Institute, later known as the Battle Creek Sanitarium, opens.
• 1972: Adventist Health Systems is formed.
• 1980: The merger of two AHS divisions results in Adventist Health System/West.
• 1982: AHS/West moves its headquarters to Roseville, California.
• 1991: The national organization is dissolved.
• 1999: Donald Ammon becomes president of Adventist Health.