Mayo Clinic’s revenue and expenses were higher in the second quarter of this year, according to financial documents released Aug. 18.
Rochester, Minn.-based Mayo Clinic’s revenue totaled $4.03 billion in the second quarter of this year, up from $3.94 billion in the same period a year earlier.
The nonprofit health system’s expenses climbed 11 percent year over year to $3.88 billion in the second quarter of 2022. Mayo Clinic saw expenses increase across all categories, including salaries and benefits.
Mayo Clinic ended the second quarter of this year with operating income of $155 million, down 66 percent from $451 million in the same quarter of 2021.
Mayo Clinic has major campuses in Rochester, Jacksonville, Fla., and Scottsdale and Phoenix, Ariz.
Nonprofit hospitals’ median financial metrics showed improvement last year, but Fitch Ratings is projecting declines for next year and beyond.
The credit rating agency analyzed 2021 audited data and reported that “AA” rated hospital medians showed a 20 percent increase in cash to adjusted debt. “BBB” rated health systems had an 8 percent increase.
“The deceptively strong numerical improvements over prior years’ medians are less a sign of sector resiliency and more a cautionary calm before the storm,” Fitch Ratings senior director Kevin Holloran said in the Aug. 18 report. “Additional expenses, primarily labor, have become part of the permanent fabric of hospital operations, that when combined with ongoing incremental challenges will exert tremendous pressure on providers through calendar 2022 and beyond.”
Fitch predicts hospital medians will flip this time next year due to inflationary pressures, a challenging operational start to 2022 and additional omicron sub-variants.
Fitch also highlighted staffing as a concern for hospital medians.
“We are likely two years before some level of ‘normal’ returns to the sector,” Mr. Holloran said in the report. “For many hospitals, their ‘value journey’ will be on temporary hold until expenses stabilize and become more predictable.”
ChristianaCare signed a letter of intent in February to acquire Crozer Health from Prospect Medical Holdings. The health systems announced Aug. 18 that the deal will not move forward.
Wilmington, Del.-based ChristianaCare and Los Angeles-based Prospect Medical Holdings said significant changes in the economic landscape since the letter of intent was signed in February impacted the ability of the deal to move forward.
“Both organizations worked very hard to reach a final agreement and have significant respect for each other, and remain committed to caring for the health of those in Delaware County,” ChristianaCare and Prospect Medical Holdings said in a joint news release.
Springfield, Pa.-based Crozer Health includes four hospitals and was acquired by Prospect Medical Holdings in 2016.
Here are eight health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings and Moody’s Investors Service.
1. Advocate Aurora Health has an “AA” rating and stable outlook with Fitch. The health system, dually headquartered in Milwaukee and Downers Grove, Ill., has a strong financial profile and a leading market position over a broad service area in Illinois and Wisconsin, Fitch said. The health system’s fundamental operating platform is strong, the credit rating agency said.
2. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base.
3. Lincoln, Neb.-based Bryan Health has an “AA-” rating and stable outlook with Fitch. The health system has a leading and growing market position, very strong cash flow and a strong financial position, Fitch said. The credit rating agency said Bryan Health has been resilient through the COVID-19 pandemic and is well-positioned to accommodate additional strategic investments.
4. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics and a leading market position and expanding operating platform in its service area, Fitch said. The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic.
5. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based health system has shown consistent year-over-year increases in market share and has a solid liquidity position, Fitch said.
6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has a consistently strong operating cash flow margin and ample balance sheet resources, Moody’s said. Inova’s financial excellence will remain undergirded by its favorable regulatory and economic environment, the credit rating agency said.
7. Salt Lake City-based Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The health system has exceptional credit quality, which will continue to benefit from its leading market position in Utah, Moody’s said. The credit rating agency said the health system’s merger with Broomfield, Colo.-based SCL Health will give Intermountain greater geographic reach.
8. UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The Des Moines, Iowa-based health system has strong leverage metrics and cash position, Fitch said. The credit rating agency expects the health system’s balance sheet and debt service coverage metrics to remain robust.
Credit rating downgrades for several hospitals and health systems were tied to capital expenditures and cash flow issues in recent months.
The following six hospital and health system credit rating downgrades occurred since May:
Doylestown (Pa.) Hospital — lowered in June from “Ba1” to “Ba3” (Moody’s Investors Service) “The downgrade to Ba3 reflects Doylestown Hospital’s … significant and recent decline in operating performance and unrestricted cash reserves through fiscal 2022, which have materially reduced headroom to the days cash on hand covenant (100 days) and increases the risk of an event of default and immediate acceleration as soon as June 30, 2022, a governance consideration under our ESG framework,” Moody’s said.
Jupiter (Fla.) Medical Center — lowered in June from “BBB+” to “BBB” (Fitch Ratings) “The ‘BBB’ rating reflects JMC’s increased leverage profile with the issuance of $150 million in additional debt to fund various campus expansion and improvement projects,” Fitch said. “While favorable population growth in the service area and demonstrated demand for services in an increasingly competitive market justify the overall strategic plan and project, the additional debt weakens JMC’s financial profile metrics and increases the overall risk profile.”
Memorial Health System (Marietta, Ohio) — lowered in July from “BB-” to “B+” (Fitch Ratings) “The downgrade of the IDR to ‘B+’ reflects MHS’s weak net leverage profile through Fitch’s forward-looking scenario analysis given stated growth and spending objectives,” Fitch said. “While operating performance has stabilized over the past three years … and reflects cost efficiency strategies and pandemic relief funding, improved cash flow funded higher levels of capital spending in fiscals 2020 and 2021.”
ProMedica (Toledo, Ohio) — lowered in May from “BBB-” to “BB+” (Fitch Ratings) “The long-term ‘BB+’ rating and the assigned outlook to negative on ProMedica Health System’s debt reflects the system’s significant financial challenges as result of continued pressure of the coronavirus pandemic and escalating expenses, with ProMedica reporting a $252 million operating loss that follows several years of weak performance,” Fitch said.
San Gorgonio Memorial Healthcare District (Banning, Calif.) — lowered in May from “Ba1” to “Ba2” (Moody’s Investors Service) “The downgrade to Ba2 reflects the district’s tenuous cash position and weak finances that have contributed to difficulty in securing a bridge loan financing for liquidity needs pending the delayed receipt of approximately $8 million to $9 million in intergovernmental transfers beyond the end of the fiscal year,” Moody’s said.
South Shore Hospital (South Weymouth, Mass.) — lowered in June from “BBB+” to “BBB” (Fitch Ratings) “The downgrade to ‘BBB’ reflects SSH’s track record of very weak operating performance over the last four fiscal years, exacerbated by staffing shortages and other pandemic-related challenges, which are stymying the system’s efforts towards an operational turnaround,” Fitch said.
Providence, a 51-hospital system, ended the first six months of this year with an operating loss, according to financial documents released Aug. 15.
For the six months ended June 30, the health system reported revenue of $12.7 billion, up 2 percent year over year on a pro forma basis. The pro forma results exclude the operations of Newport Beach, Calif.-based Hoag Hospital. Providence and Hoag ended their affiliation in January.
Providence’s expenses also increased. For the six months ended June 30, the health system reported operating expenses of $13.6 billion, up 8 percent year over year on a pro forma basis. Higher wages, increased agency staffing costs and overtime pushed Providence’s labor costs higher year over year, the system said in an earnings release.
Providence ended the first two quarters of this year with an operating loss of $934 million, compared to an operating loss of $94 million in the same period a year earlier. The system’s second-quarter operating loss totaled $424 million.
Providence, which has system offices in Renton, Wash., and Irvine, Calif., released its financial results a month after announcing a plan to shrink its leadership team and roll out a new divisional structure.
“Creating a more sustainable model of health care by 2025 has been a key part of our vision since before the pandemic,” Providence CFO Greg Hoffman said in the earnings release. “But it has become even more imperative today as health systems across the country face a new reality. Alongside our investments to simplify processes and modernize technology, streamlining our leadership and administrative structure is another way we will ensure we are operating as efficiently as possible, so that we can keep resources focused on direct patient care, especially for those who are most vulnerable.”
For the six months ended June 30, Providence invested $1 billion in community benefit, compared to $813 million in the same period of 2021, according to the earnings release.
“Having served the Western U.S. for more than 165 years, Providence has lived through other economic downturns, past pandemics, and periods of political and social unrest. With the steps we are taking to respond to the times, we will continue supporting caregivers and serving our communities throughout these challenging times, with the mission of Providence enduring for generations to come,” Providence President and CEO Rod Hochman, MD, said in the earnings release.
HENRY KOTULA 