HEALTHCARE
According to long-held beliefs among economists and the American public, the competitive nature of business is expected to always-and-ever improve efficiency, quality and innovation. But imposing free-market principles on what are essentially human services has created a legion of problems that everyone seems to lament.
Folks don’t usually think about it this way, but there’s a good reason why nobody expects every branch of the military to show an annual profit.
Defending America is a service we all provide for one another, and it costs money. It does not generate revenue for the treasury.
But for some reason, Americans have decided we need the Postal Service, some prisons and the healthcare sector to exist in a for-profit context, and it sure seems like nobody is happy with the results.
But here we are.
How Did We Get Here?
The transition to paid health insurance following passage of the 1973 HMO Act proved to be more challenging than everyone expected.
There was quite a bit of resistance from consumers and health professionals, which made both reluctant to adopt the idea, creating financial difficulties for early HMOs.
Physicians pushed back against restrictions on their referral networks, and the idea of working within a prepaid system.
Consumers were reluctant to enroll in plans that limited their choice of physicians and hospitals, especially if they already had doctors they liked.
After struggling for several years, it was rapidly rising medical costs in the late 1970s and early ’80s that eventually led to widespread acceptance of health plans, on their promise to lock in health expenditures for the lowest cost.
The private sector, as the major payer of employee benefits, became very interested in HMOs.
The Change Creeps In
Working to adapt to the changing market conditions, many not-for-profit HMOs suddenly became for-profit companies, attracting capital for expansion, and to meet new state-mandated net-worth requirements.
According to a Rand Corporation report on this subject published in 2009, an estimated $1 billion in private investment flowed into prepaid plans between 1974 and 1983.
(This Rand Corporation report on the 1973 HMO Act explains all the details.)
According to another report — this one from the National Institutes for Health in 1983, this led to the number of hospitals owned or managed by for-profit hospital chains almost doubling between 1976 and 1982 — from 533 to 1,040 hospitals.
Around that time, there were three hospitals in San Angelo:
The Clinic Hospital, which was a private-practice facility; San Angelo’s first hospital, St. John’s built in 1911, and Shannon West Texas Memorial.
In mid-to-late 1970s, Community Hospital appeared in southwest San Angelo, in conjunction with West Texas Medical Associates, and the Clinic Hospital downtown closed.
Shannon acquired St. John’s in 1995, and Community Medical Center and WTMA in 2021.
A Brief History of Shannon Trust
In many, many ways, the people of the Concho Valley are lucky the Shannon Trust has possessed the ability to keep up with the rapidly changing world of medicine for nearly a century.
Shannon Trust has allowed people in San Angelo and the surrounding area to receive exceptional healthcare with few impediments, while providing a path to care for low-income and indigent patients — absorbing costs that would otherwise become tax levies through a hospital district.
While Shannon is a 501 (c) (3) entity, the nature of competitive healthcare in America requires Shannon to behave, in some respects, like a for-profit entity, but in many, many ways, the people of the Concho Valley are also lucky that Shannon has the resources to maintain dominance within its “sphere of influence.”
Many communities haven’t been quite so lucky, and many private-equity firms are now in charge of healthcare in some of those areas, often to the dismay of doctors in patients.
According to a community health assessment published in 2022, “Shannon serves a 25-county region and provides access to more than 350 providers in 40 medical specialties across 25 locations,” no small feat for a healthcare provider these days.
Based on the most current trends, it’s likely that if Shannon didn’t exist, the people of San Angelo and the Concho Valley would likely be dealing instead with a hospital and health system owned by a private equity firm.
According to Airtable.com’s Private Equity Hospital Tracker, private equity (PE) firms own around 485 U.S. hospitals in the United States currently, which includes 108 facilities in Texas.
That represents a 25-fold increase for private equity ownership of hospitals over the last two decades.
Margaret Shannon (1854-1931)
When Margaret A. Shannon died at St. John’s Hospital in San Angelo on Dec. 14, 1931, she left the lion’s share of her estate to establish a hospital that would take care of everyone, and to accomplish this, she endowed a trust.
Mrs. Shannon was born May 8, 1854 in Edinburgh, Scottland, and met her husband, John Moore Shannon, aboard a ship sailing between Australia and San Francisco, when she was 18.
The pair later married in Ayr, Scottland, at the home of poet Robert Burns.
The newlyweds arrived in America and lived first at Kansas City for a time before heading out west in search of the right opportunity, settling in a few different places.
Knowing a lot about the sheep business, he herded and sheared sheep for Arthur Anderson and the Rix brothers and dug postholes for J. Wright and John Wesley Mooar around Colorado City before forming a partnership with A. F. Clarkson and Ben Griffith in 1885.
That trio secured the contract to undertake the largest commercial fencing project in world history — enclosing portions of the enormous X.I.T. Ranch, situated throughout 10 counties of the Texas Panhandle, it was the land sale that financed the Texas State Capitol.
According to biographical information, the profits from this venture financed his entry into the ranching business, and he moved into Irion, Crockett and then Reagan counties, buying land until he controlled more than 225,000 acres.
Putting his money to work at once, Shannon organized and directed banks in Ozona, Snyder and San Angelo, and was a major investor in several insurance companies. He financed the first telephone system connecting Ozona and Fort Stockton, and wool houses in several communities.
Uniquely, Mr. Shannon was also known for investing in his neighbors, cosigning on around $3 million worth of loans to help local ranchers weather lean times or expand.
Shannon soon developed a reputation as a shrewd businessman, and he began acquiring land for ranching purposes, well on his way to becoming a leading man in West Texas, the moved to Colorado City and then Big Spring.
After taking a substantial position with business interests in rural Crockett and Reagan counties, the Shannons settled in San Angelo in 1893. They were the first couple to stay in the new St. Angelus Hotel, where they took up permanent residence.
Mr. Shannon died in 1928.
Mrs. Shannon, although very well travelled, was know to be a naturally-thrifty soul, and lived very modestly.
The couple did not have any children, and they were known locally for their philanthropy, and for helping many young men in town get a good education and a decent start in life.
The Bequest
“All the rest and residue of my property after all taxes and debts have been paid and the foregoing legacies satisfied, I bequeath to the following trustees, to-wit, J.S. Hixson, W.C. Blanks, Alex Collins, H.E. Jackson, Willis Johnson, W.M. Hemphill and George E. Webb to be held and administered as a trust estate for the construction, upkeep, maintenance and support of a hospital to be located at San Angelo, Tom Green County, Texas, to be known as the Shannon West Texas Memorial Hospital.
“It is my desire that such a hospital shall be open to every sick person applying for admission therein free to those who are not able to pay, the trustees being fully authorized to determine by proper rules and regulations exactly the way and manner in which patients shall be received, and what charges, if any, shall be made for hospital service, such trustees being further authorized to determine the nature and character of patients to be received by the hospital.”
Margaret Shannon’s original bequest was estimated at around $2,000,000 at that time, but that was before oil was found under those Shannon lands south and west of San Angelo.
The Location
City Hospital opened in 1915, “two miles west of town,” which was in operation for less than a decade, and a new San Angelo Hospital began going up at the corner of Harris Avenue and Magdalen Street in late 1926, after a groundbreaking ceremony on Dec. 13.
This property was acquired by the Shannon Trust in January of 1932, for a reported price of $122,500, consisting of lots 11 and 12 Main San Angelo, which were 100 and 190 feet respectively.
“On them is situated a four-story fire proof building with basement and a two-story frame nurses’ home. The brick hospital was built in the winter of 1926-27 after the group had bought the old Rush Hospital. Prior to that it had been the home of John Findlater.”
The trustees immediately invested about $25,000 to make sure the hospital had the latest medical technology, making Shannon West Texas Memorial one of the best equipped hospitals in Texas.
Trustees, recognizing the need for future growth, began acquiring adjacent and nearby parcels they felt could be useful someday.
With regular population increases, expansions to the hospital were undertaken in 1945, 1957 and 1963, eventually resulting in a 180-bed facility
Construction on a new hospital began in 1977 and was largely completed two years later, but the facility at 120 East Harris didn’t open until 1981.
In 1987, reflecting its expanded mission, the hospital name changed to Shannon Medical Center, and in 1995, changes in healthcare regulations and local market conditions spurred trustees to transition into a larger entity known as Shannon Health System. The St. John’s campus was added around that time.
During an interview a few years later, trustee Lester Smith talked about the evolution of Shannon Health.
“In the beginning it was just one — the hospital and the trust were one. But then with Medicare regulations and modern needs and demands, the system was created.”
Smith explained that, because of the wording of Margaret Shannon’s will, the money in the trust may only be used for maintaining the hospital, and not the other Shannon facilities, or other San Angelo non-profit or charity organizations.
“The principal can’t be touched,” Smith said, “Only the interest earned can go toward the upkeep of the hospital.”
He said this put the onus on trustees to grow the permanent fund in order to keep up with the hospital’s needs.
History of Investment
According to Smith, the began with only the value of the acreage Margaret Shannon left to the trust and a modest amount of cash.
After oil and gas was discovered a few years later, royalties began accruing and the original trustees, many of whom were ranching experts, initially invested by buying land.
He said after this proved to be a less effective investment strategy, some of the land was sold off to allow investment in other areas that produced more income.
He said oil markets bottoming out have caused upset in the revenue stream at times, leading trustees to diversify extensively.
Smith said that rumors about the net worth of the trust are usually wildly exaggerated, and it’s a myth that trustees don’t have to worry about money.
He said the way the trust is arranged, each year the hospital makes a formal request for capital projects, and the trustees do their best to accommodate.
“Some years the investments do better than other years, so we have more funds, or less if it goes the other way,” Smith said. “The trustees listen to the requests and determine what they can afford to fund.”
Smith said the new hospital project in 1981 cost about $19 million, which represented several years of accumulated income and careful planning to accomplish.
He ended by saying “I think in these days of reduced Medicare payments, slow insurance payments and rising costs, it makes it hard for a hospital to do well. The hospital probably needs the trust more than ever now.
“The trust is a real boon to the hospital and a real boon to San Angelo.”
MILESTONES
- 1932 – Shannon West Texas Memorial Hospital established
- 1949 – Shannon fights deadly polio epidemic in San Angelo
- 1968 – Intensive Care Unit created
- 1971 – First life-support systems used
- 1973 – Neonatal Intensive Care Unit begins to take shape with ventilator to sustain breathing in premature and critically ill newborns
- 1977 – Ground is broken for new hospital on north side of Harris Ave.
- 1979 – Computerized Axial Tomography, or CAT, scan use begins; further improvement to life-support systems
- New hospital’s principal construction completed
- 1981 – New hospital opens with 209 beds and private rooms
- 1982 – Older hospital demolished for parking area
- 1984 – Hospital-based home-health service provides in-home care
- 1985 – Cardiac catheterization lab established for heart procedures
- 1986 – Skilled nursing facility developed to provide extended-care services for patients needing long-term care; cardiac rehabilitation department is created.
- 1987 – Reflecting its expanded mission, the hospital name changes to Shannon Medical Center
- 1988 – Oncology unit and outpatient chemotherapy treatments established to provide specialized care for cancer patients; First open-heart surgery performed
- 1993 – Shannon Women’s and Children’s Center opens
- 1994 – AirMed 1, a hospital-based air ambulance, begins operating from Shannon, and the Women’s and Children’s Hospital is created.
- 1995 – Changes in healthcare regulations and local market conditions spur trustees to transition into a larger entity known as Shannon Health System. St. John’s campus added.
- 1996 – Shannon Regional Heart Center opens. The original Shannon Ranch, located in Irion, Crockett and Reagan counties remained a working ranch administered by trustees, who also worked to provide care for some rural areas, opening a Shannon Clinic in Ozona when the local hospital closed.
- 2000 – Shannon is designated a Lead Level III Trauma Center for service area K, which includes Tom Green County and 14 surrounding counties in the Concho Valley.
- 2003 – Children’s Miracle Network chapter is established at the hospital.
- 2016 – Shannon begins a $74 million tower expansion that was completed Feb. 28, 2020.
- 2020: Shannon Medical Center merges with Community Medical Center, creating the Shannon Health System and establishing the Shannon South Campus for combined operations, clinics, and specialized services.
- 2023: South Campus expands with new imaging, dermatology, and eye center services, aiming to alleviate downtown pressure.
- As of 2024, Shannon Medical Center is licensed for 600+ beds, while Shannon Health System provides access to more than 400 providers in 40 medical specialties at more than 30 locations.
