16 hospitals with strong finances

Here are 16 hospitals and health health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. Morristown, N.J.-based Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The health system has strong operating performance and liquidity metrics, Moody’s said. The credit rating agency expects Atlantic Health System to sustain strong performance to support capital spending. 

2. Children’s Hospital of Akron (Ohio) has an “AA-” rating and stable outlook with Fitch. The hospital has strong operating performance and a leading market position as Akron’s only standalone pediatric hospital, Fitch said. The credit rating agency expects the organization’s strong profitability and limited capital needs to lead to liquidity growth. 

3. Milwaukee-based Children’s Wisconsin has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading statewide market share for children’s healthcare services, solid cash flow, strong revenue growth and a robust balance sheet, Moody’s said. The credit rating agency expects Children’s Wisconsin’s balance sheet and debt metrics to remain strong. 

4. Greensboro, N.C.-based Cone Health has an “AA” rating and stable outlook with Fitch. The health system has a leading market share and a favorable payer mix, Fitch said. The health system’s broad operating platform and strategic capital investments should enable it to return to stronger operating results, the credit rating agency said. 

5. El Camino Health has an “AA-” rating and stable outlook with Fitch. El Camino Health, which includes hospital campuses in Los Gatos, Calif., and Mountain View, Calif., has a solid market share in a competitive market and a stable payer mix, Fitch said. The credit rating agency said El Camino Health’s balance sheet provides moderate financial flexibility. 

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. Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. The Boston-based health system has an excellent clinical reputation, good financial performance and strong balance sheet metrics, Moody’s said. The credit rating agency said it expects Mass General Brigham to maintain a strong market position and stable financial performance. 

8. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said Mayo Clinic’s strong market position and patient demand will drive favorable financial results. The health system “will continue to leverage its excellent reputation and patient demand to continue generating favorable operating performance while maintaining strong balance sheet ratios,” Moody’s said. 

9. Memorial Sloan Kettering Cancer Center in New York City has an “AA” rating and stable outlook with Fitch and an “AA-” rating and stable outlook with S&P. Memorial Sloan Kettering Cancer Center’s national and international reputation as a premier cancer hospital will continue to support the organization’s growth, Fitch said. The hospital has a leading and growing market share for its specialty services, according to the credit rating agency. 

10. Methodist Health System has an “Aa3” rating and stable outlook with Moody’s. The Dallas-based system has strong operating performance, and investments in facilities have allowed it to continue to capture more market share in the fast-growing Dallas-Fort Worth, Texas, area, Moody’s said. The credit rating agency said it expects Methodist Health System’s strong operating performance and favorable liquidity to continue. 

11. Albuquerque, N.M.-based Presbyterian Healthcare Services has an “Aa3” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with Fitch. The health system has a leading statewide market share, strong revenue growth and a healthy balance sheet, Moody’s said. The credit rating agency said it expects Presbyterian Healthcare Services’ operations to continue to improve and its balance sheet and debt metrics to remain strong. 

12. Chicago-based Rush Health has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile and a broad reach for high-acuity services as a leading academic medical center, Fitch said. The credit rating agency expects Rush’s services to remain profitable over time. 

13. Stanford (Calif.) Health Care has an “AA” rating and stable outlook with Fitch. The health system has extensive clinical reach in a competitive market and its financial profile is improving, Fitch said. The health system’s EBITDA margins rebounded in fiscal year 2021 and are expected to remain strong going forward, the crediting rating agency said. 

14. St. Clair Hospital in Pittsburgh has an “AA-” rating and stable outlook with Fitch. The hospital has a strong financial profile and a solid market position in the competitive greater Pittsburgh-area healthcare market, Fitch said. The credit rating agency expects the hospital’s margins to remain solid, driven by growth in key service lines. 

15. University of Chicago Medical Center has an “AA-” rating and stable outlook with Fitch. The credit rating agency said it expects University of Chicago Medical Center’s capital-related ratios to remain strong, in part because of its broad reach of high-acuity services. 

16. University of Iowa Hospitals and Clinics has an “Aa2” rating and stable outlook with Moody’s. The Iowa City-based health system, the only academic medical center in Iowa, has strong patient demand and excellent financial management, Moody’s said. The credit rating agency said it expects the health system to continue to manage the pandemic with improved operating cash flow margins.

Saying farewell (for now) to a terrible financial quarter

Judging from our recent conversations with health system executives, we’d guess CEOs across the industry woke up this morning glad to see the first quarter in the rearview mirror.

Almost everyone we’ve spoken to has told us that the past three months have been miserable from an operating margin perspective—skyrocketing labor costs, rising drug and supply prices, and stubbornly long length of stay, particularly among Medicare patients.

In the words of one CFO, “I’ve never seen anything like this. For the first time, we budgeted for a negative margin, and still didn’t hit our target. I’m not sure how long our board will let us stay on this trajectory before things change.”

Yet few of the drivers of poor financial performance appear to be temporary. Perhaps the over-reliance on agency nursing staff will wane as COVID volumes bottom out (for how long remains unknown), but overall labor costs will remain high, there’s no immediate relief for supply chain issues, and COVID-related delays in care have left many patients sicker—and thus in need of more costly care. Plus, the lifeline of federal relief funds is rapidly dwindling, if not already gone.

Expect the next three quarters (and beyond) to bring a greater focus on cost cutting, especially as not-for-profit systems struggle to defend their bond ratings in the face of rising interest rates.

Buckle up, it’s going to be a bumpy landing.

Providence hit with credit downgrade after Hoag split

Moody’s Investors Service has downgraded the ratings on Providence’s revenue bond debt to “A1” from “Aa3.” 

“The downgrade to ‘A1’ is driven by the disaffiliation with Hoag Hospital, and the expectation that weaker operating, balance sheet, and debt measures will continue for the time being,” Moody’s said in an April 5 release. 

Renton, Wash.-based Providence and Newport Beach, Calif.-based Hoag ended their affiliation Jan. 31. The two organizations cut ties at a time when Providence is facing several challenges, including operating pressures, variable utilization and reliance on temporary labor, Moody’s said. 

The “A1” rating and stable outlook also reflect Providence’s strengths, including a large service area, a large revenue base of more than $25 billion and a leading market share in all of its markets. 

Moody’s said it expects Providence to continue to grow its operating platform and generate additional revenue growth. 

Credit monitoring companies are removing most medical debt from consumer credit reports

Spurred by the Consumer Financial Protection Bureau’s investigation into how credit companies report medical debt, TransUnion, Equifax, and Experian—the country’s three largest credit bureaus, who keep records on 200M Americans—are revising how they report medical debt.

As a result, the companies could eliminate up to 70 percent of medical debt from consumers’ credit reports. Starting in July, medical debts paid after going to collections will no longer appear on credit reports, and unpaid debts won’t be added until a year after being sent to collections (instead of six months, per current policy). And beginning in 2023, medical debts of less than $500 will also be excluded from credit reports altogether.

The Gist:The poorest and sickest patients have been disproportionately saddled with the highest levels of medical debt. In 2017, 19 percent of US households carried medical debt, including many with private insurance. 

While these changes will help mitigate the impact of medical debt for some, they aren’t a fix to the larger underlying problem of rising healthcare costs and access to adequate health insurance coverage. 

Hospitals brace for omicron as margins weaken further, Kaufman Hall reports

Dive Brief:

  • Hospitals saw operating margins continue to erode in October, declining 12% from September under the weight of rising labor costs, according to a national median of more than 900 health systems calculated by Kaufman Hall. It was the second consecutive monthly drop and comes as facilities are preparing for the fast-spreading omicron variant of the coronavirus.
  • Although expenses remained highly elevated, patient days and average length of stay fell for the first time in months in October, likely reflecting lower hospitalization rates as the pressure of treating large numbers of COVID cases began to ease, Kaufman Hall said in its latest report.
  • At the same time, operating room minutes rose 6.8% from September, pointing to renewed patient interest in elective procedures.

Dive Insight:

Doctors and nurses have barely caught a breath from the most recent surge in inpatient volumes driven by the delta variant. Now, hospitals face the possibility of a fresh wave of cases led by omicron.

“Performance could continue to suffer in the coming months as hospitals face sustained labor increases and the uncertainties of the emerging omicron variant,” according to the Kaufman Hall report.

The new variant has not been detected in the U.S. as of Wednesday morning, but Canada is among the 20 countries that have confirmed cases.

Scientists are scrambling to understand the characteristics of the omicron variant. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told a White House press briefing Tuesday that omicron’s mutation profile points to “increased transmissibility and immune evasion.” But it is too soon to tell whether omicron will cause more severe disease than other COVID-19 variants, or how well current vaccines and treatments work against it, Fauci said.

Moderna CEO Stéphane Bancel told the Financial Times he thought existing vaccines would be less effective against omicron than earlier variants. Moderna, Pfizer, Johnson & Johnson and other manufacturers are already working to adapt their vaccines to combat the new threat, first reported by South African scientists on Nov. 24.

Regeneron also said its COVID-19 antibody drug, the top-selling treatment in the U.S., might be less effective against omicron. The company said it is now conducting tests to determine how the variant affects its drug.

As the focus shifts to preparing for omicron, labor costs are squeezing hospital margins. Leading hospital systems including Kaiser Permanente and Advocate Aurora Health were among those reporting pressure on margins from rising labor expenses in the third quarter.

The median hospital operating margin, not including federal Coronavirus Aid, Relief, and Economic Security Act funding, was down 31.5% in October, compared to pre-pandemic levels in the same month of 2019, according to Kaufman Hall’s snapshot. Hospitals in the West, South and Midwest that were hardest hit by the delta variant saw year-over-year margin declines.

Total labor expenses rose nearly 3% from September to October, 12.6% compared to October 2020 and 14.8% compared to October 2019, Kaufman Hall said. Full-time equivalents per adjusted occupied bed decreased 4.5% versus 2020 and 4% versus 2019, suggesting higher salaries due to nationwide labor shortages, rather than increased staffing levels, are driving up labor expenses.

Total non-labor expenses, however, decreased 1% in October from September for supplies, drugs and purchased services, following months of increases.

Broader economic trends such as U.S. labor shortages are adding to the extreme pressures of the pandemic. Hospitals face greater uncertainties in the coming months as a result, as COVID-19 cases and hospitalizations appear to once again be on the upswing before many have even had a chance to recover from the last surge,” Erik Swanson, a senior vice president of data and analytics at Kaufman Hall said.

14 health systems with strong finances

What next for the US dollar? - TalkingPoint - Schroders

Here are 14 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. Advocate Aurora Health has an “Aa3” rating and positive outlook with Moody’s. The health system, which has dual headquarters in Milwaukee and Downers Grove, Ill., has a leading market share in two regions and strong financial discipline, Moody’s said. The credit rating agency said it expects Advocate Aurora Health’s operating cash flow margins to return to pre-pandemic levels. 

2. Pinehurst, N.C.-based FirstHealth of the Carolinas has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and stable operating performance, despite disruption from the COVID-19 pandemic, Fitch said. The health system’s revenue in the first quarter of fiscal 2021 rebounded to levels close to historical trends, according to the credit rating agency. 

3. Indianapolis-based Indiana University Health has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and positive outlook with Fitch. Cost controls and patient volume will help the system sustain strong margins and liquidity, Moody’s said. 

4. Rapid City, S.D.-based Monument Health has an “AA-” rating and stable outlook with Fitch. The health system has solid operating margins that Fitch expects to remain stable over the near term. Monument Health’s operating margins will continue to support liquidity growth and capital spending levels, the credit rating agency said. 

5. Chicago-based Northwestern Medicine has an “Aa2” rating and stable outlook with Moody’s, and an “AA+” rating and stable outlook with S&P. The system’s consolidated operating model will allow it to maintain a strong financial position while effectively executing strategies, Moody’s said. The credit rating agency expects Northwestern Medicine to expand its prominent market position in the broader Chicago region because of its strong brand and affiliation with Northwestern University’s Feinberg School of Medicine. 

6. Renton, Wash.-based Providence has an “AA-” rating and stable outlook with Fitch and an “Aa3” rating and stable outlook with Moody’s. Fitch said Providence has a long-term strategic advantage over most of its peers because it has invested heavily in developing technology in recent years, and the system’s plan to transform healthcare delivery through the use of data and technology has been undeterred through the COVID-19 pandemic. Fitch said it expects Providence’s cash flow margins to be close to 7 percent in the coming years. 

7. Livingston, N.J.-based RWJBarnabas Health has an “Aa3” rating and stable outlook with Moody’s. Moody’s said it expects RWJBarnabas, the largest integrated academic health system in New Jersey, to see near-term revenue growth and to execute on several strategic fronts while achieving targeted financial performance.  

8. Broomfield, Colo.-based SCL Health has an “AA-” rating and stable outlook with Fitch and an “Aa3” rating and stable outlook with Moody’s. The health system has consistently improved its liquidity levels and has a long track record of exceptional operations, Fitch said. SCL Health is well positioned for change in the healthcare sector because it has built up cash reserves over time, according to the credit rating agency. 

9. San Diego-based Scripps Health has an “Aa3” rating and stable outlook with Moody’s. The health system has ample liquidity coverage, an extensive footprint and strong brand and market share within San Diego County, Moody’s said. The credit rating agency said it expects Scripps to weather current operating challenges and to grow operating cash flow over the long term. 

10. Norfolk, Va.-based Sentara Healthcare has an “Aa2” rating and stable outlook with Moody’s. The health system has strong margins, and Moody’s said it expects the system to maintain a strong financial position and balance sheet. 

11. Arlington-based Texas Health Resources has an “Aa2” rating and stable outlook with Moody’s. The health system has a strong cash position, which will be boosted by favorable investment gains and bond proceeds, Moody’s said. Based on performance in the second quarter of this year, Moody’s expects Texas Health Resources’ patient volume and operating cash flow margins to recover to pre-COVID-19 levels. 

12. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said it expects the system to maintain strong operating performance and cash flow. The system benefits as the only academic medical center in Iowa, according to Moody’s. 

13. Des Moines, Iowa-based UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The system has strong leverage metrics, and it benefited from strong market returns during the pandemic. The system’s days with cash on-hand increased to 285 days at the end of 2020, up from 231 days at the end of 2019, according to the credit rating agency. 

14. Kansas City-based University of Kansas Health System has an “AA-” rating and stable outlook with Fitch. The health system has solid operating results and has sustained significant revenue growth, Fitch said. The system’s profitability dipped in fiscal year 2020 because of the COVID-19 pandemic, but its profitability rebounded in fiscal year 2021, according to the credit rating agency. 

67 financial benchmarks for health system executives

35 financial benchmarks for healthcare executives | HENRY KOTULA

Health system leaders use benchmarking as a way to determine how their organizations stack up against both local and regional peers.

Below are 67 financial benchmarks, including key ratios for health systems, as well as revenue and margin metrics, broken down by rating category.

Key balance sheet metrics, ratios:

Source: Fitch Ratings’ “2021 Median Ratios: Not-for-Profit Hospitals and Healthcare Systems” report. It was released Aug. 3. 

1. Cash on hand: 255 days

2. Accounts receivable: 44.6 days

3. Cushion ratio: 29x

4. Current liabilities: 95 days

5. Cash to debt: 169.9 percent

6. Cash to adjusted debt: 161.1 percent

7. Operating margin: 1.3 percent

8. Operating EBITDA margin: 6.7 percent

9. Excess margin: 3.1 percent

10. EBITDA margin: 8.5 percent

11. Net adjusted debt to adjusted EBITDA: -2.6 percent

12. Personnel costs as percent of total operating revenue: 55 percent

13. EBITDA debt service coverage: 3.9x

14. Operating EBITDA debt service coverage: 3.2x

15. Maximum annual debt service as percent of revenues: 2.2 percent

16. Debt to EBITDA ratio: 4.4x

17. Debt to capitalization: 35.2 percent

18. Average age of plant: 11.4 years

19. Capital expenditures as percent of depreciation expense: 110.1 percent

Margins, revenue financial benchmarks broken down by rating category: 

Source: S&P Global Ratings “U.S. Not-For-Profit Health Care System Median Financial Ratios — 2019 vs. 2021″ report.” The report was released Aug. 30.

“AA+” rating

20. Net patient service revenue: $4.16 billion

21. Total operating revenue: $4.43 billion

22. Operating margin: 4.5 percent

23. Operating EBIDA margin: 11.3 percent

24. Excess margin: 5.5 percent

25. EBIDA margin: 12.2 percent

“AA” rating

26. Net patient service revenue: $3.98 billion

27. Total operating revenue: $4.95 billion

28. Operating margin: 3.2 percent

29. Operating EBIDA margin: 8.3 percent

30. Excess margin: 5.8 percent

31. EBIDA margin: 10.7 percent

“AA-” rating

32. Net patient service revenue: $3.08 billion

33. Total operating revenue: $3.41 billion

34. Operating margin: 1.9 percent

35. Operating EBIDA margin: 7.1 percent

36. Excess margin: 4.1 percent

37. EBIDA margin: 9.2 percent

“A+” rating

38. Net patient service revenue: $2.26 billion

39. Total operating revenue: $2.55 billion

40. Operating margin: 3 percent

41. Operating EBIDA margin: 7.1 percent

42. Excess margin: 5.5 percent

43. EBIDA margin: 10.9 percent

“A” rating

44. Net patient service revenue: $2.69 billion

45. Total operating revenue: $3.07 billion

46. Operating margin: 0.7 percent

47. Operating EBIDA margin: 6.6 percent

48. Excess margin: 5.5 percent

49. EBIDA margin: 2.3 percent

“A-” rating

50. Net patient service revenue: $2.08 billion

51. Total operating revenue: $2.69 billion

52. Operating margin: 0.6 percent

53. Operating EBIDA margin: 6.7 percent

54. Excess margin: 2.4 percent

55. EBIDA margin: 8 percent

“BBB+” rating

56. Net patient service revenue: $1.85 billion

57. Total operating revenue: $2.27 billion

58. Operating margin: -0.2 percent

59. Operating EBIDA margin: 5 percent

60. Excess margin: 0.5 percent

61. EBIDA margin: 6 percent

“BBB” rating

62. Net patient service revenue: $2.96 billion

63. Total operating revenue: $4.11 billion

64. Operating margin: -3.2 percent

65. Operating EBIDA margin: 1.6 percent

66. Excess margin: -2 percent

67. EBIDA margin: 2.8 percent

18 health systems with strong finances

Hospital Mergers, Acquisitions, and Affiliations | Case Study – RMS

Here are 18 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. Altamonte Springs, Fla.-based AdventHealth has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and a stable outlook with Fitch. The system has strong profitability, solid liquidity and presence in several high growth markets, Fitch said.

2. St. Louis-based BJC HealthCare has an “AA” rating and stable outlook with S&P and an “Aa2” rating and stable outlook with Moody’s. The health system has a leading market share and a highly regarded reputation, particularly for its flagship hospitals that are affiliated with Washington University School of Medicine in St. Louis, S&P said. The health system has consistently produced stable earnings and cash flow, even during the COVID-19 pandemic, according to the credit rating agency. 

3. Dallas-based Children’s Health System of Texas has an “AA” rating and stable outlook with Fitch. The system has robust operating profitability, good expense management and strong EBITDA margins, according to Fitch. 

4. Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. The system’s international brand will allow it to grow revenue outside of the northeast Ohio market and offset the effects of the pandemic on patient volume, Moody’s said. The credit rating agency expects the system to maintain good cash flow margins. 

5. Evansville, Ind.-based Deaconess Health System has an “AA” rating and stable outlook with Fitch. The health system has strong operating performance and an expanding footprint in a stable and economically diverse service area, Fitch said. Investments in core service lines should help support patient volume growth, according to the credit rating agency. 

6. Durham, N.C.-based Duke Health has an “AA” rating and stable outlook with Fitch. The system has a strong clinical reputation and a solid balance sheet with substantial liquidity reserves, Fitch said. 

7. Pinehurst, N.C.-based FirstHealth of the Carolinas has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and stable operating performance, despite disruption from the COVID-19 pandemic, Fitch said. The health system’s revenue in the first quarter of fiscal 2021 rebounded to levels close to historical trends, according to the credit rating agency. 

8. Milwaukee-based Froedtert Health has an “AA” rating and stable outlook with Fitch. The system has a solid market position and a robust liquidity position, Fitch said. The credit rating agency expects Froedtert to maintain robust operating cash flow levels. 

9. Indianapolis-based Indiana University Health has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and positive outlook with Fitch. Cost controls and patient volume will help the system sustain strong margins and liquidity, Moody’s said. 

10. IHC Health Services, the borrowing group of Salt Lake City-based Intermountain Healthcare, has an “Aa1” rating and stable outlook with Moody’s. Intermountain has a leading statewide market position, low debt levels and strong cash levels, Moody’s said. The credit rating agency expects Intermountain will sustain strong margins and cash levels. 

11. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile, and Moody’s expects Inova’s balance sheet to remain exceptionally strong. 

12. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The health system has strong balance sheet measures, an excellent market position and strong patient demand at its three academic campuses in Minnesota, Arizona and Florida, Moody’s said. The credit rating agency expects strong patient demand and steps taken by management to allow Mayo to maintain adequate cash flow and strengthen balance sheet measures. 

13. Traverse City, Mich.-based Munson Healthcare has an “AA” rating and stable outlook with Fitch. The system has strong leverage and liquidity, Fitch said. The credit rating agency expects Munson to maintain solid operating cash flow margins. 

14. Tupelo-based North Mississippi Health Services has an “AA” rating and stable outlook with Fitch. The system has a leading market share in a large 20-county service area and strong adjusted leverage metrics, Fitch said. 

15. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s and an “AA+” rating and stable outlook with S&P. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins. 

16. Columbus-based OhioHealth has an “Aa2” rating and stable outlook with Moody’s and an “AA+” rating and stable outlook with S&P. The system has a leading market position and opportunities for service line expansion, Moody’s said. The credit rating agency expects the system’s strong liquidity to provide ample cushion for volatility in investment returns. 

17. Stanford (Calif.) Health Care has an “AA” rating and stable outlook with Fitch. The system has broad reach and is a clinical destination for high acuity services, Fitch said. The credit rating agency expects the system to sustain strong EBITDA margins. 

18. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency expects the system to maintain strong operating performance and cash flow. The system benefits as the only academic medical center in Iowa, according to Moody’s. 

S&P upgrades view on nonprofit health sector as COVID-19 cases drop

Dive Brief:

  • S&P Global Ratings on Wednesday upgraded its view on the nonprofit healthcare sector to stable. It had been at negative since March 2020, a view that was affirmed in January.
  • Analysts said the change results from coronavirus vaccination rates and decreasing COVID-19 cases as well as a drop in the unemployment rate that should reduce payer mix shakeup. They also pointed to generally healthy balance sheets across the sector.
  • Headwinds remain, most notably labor expenses as burnout among staff was heavily exacerbated by the pandemic. Increased salaries and benefit expenses will dampen margins going forward, according to the report.

Dive Insight:

The change is another sign for providers that their financial situation is on a rather swift recovery from the upheaval caused by the pandemic. Although some facilities, especially those that are smaller and in rural areas, are certainly still struggling, that was the case before COVID-19 as well.

Most nonprofit health systems reported first-quarter results that showed improved volumes and investment returns. Some are still sporting more than a year’s worth of cash on hand.

Many of them took advantage of federal coronavirus relief funds, most of which can now be used more flexibly. A few, like Kaiser Permanente, did fine without the aid and ended up returning it.

The S&P analysts warned, however, that potential COVID-19 outbreaks this fall would be a setback. That remains a concern with some parts of the country lagging in vaccination rates and the increasing prevalence of more contagious COVID-19 variants.

Other risks include the end of enhanced federal reimbursement and the return of the Medicare sequester cuts when the public health emergency ends, which is expected to be after the end of this year.

But the analysts said agile management teams should be able to combat these challenges.

“[T]o the extent that the pandemic has enabled faster decision making and allowed management teams to pivot and identify new opportunities for expense base restructuring and revenue enhancement, we believe these risks are manageable within our view of the stable sector view,” according to the report.

10 health systems with strong finances

Here are 10 hospitals and health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings and Moody’s Investors Service. 

1. Altamonte Springs, Fla.-based AdventHealth has an “Aa2” rating and stable outlook from Moody’s. The credit rating agency said the system benefits from strong operating cash flow margins, low operating leverage and a large scale with presence in multiple states.  

2. Children’s Hospital of Philadelphia has an “Aa2” rating and stable outlook from Moody’s. The credit rating agency said the rating is reflective of Children’s Hospital of Philadelphia’s strong market position and brand equity as a top U.S. children’s hospital with advanced clinical research. The pediatric hospital network also has strong liquidity.

3. Cleveland Clinic has an “Aa2” rating and stable outlook from Moody’s. The credit rating agency said the health system benefits from its reputation as an international brand, which will allow it to grow revenue outside of the Ohio market. Moody’s said it maintains good cash flow margins and therefore very strong liquidity.

4. Cottage Health in Santa Barbara, Calif., has an “AA-” rating and stable outlook from Fitch. The credit rating agency said Cottage benefits from consistently strong profitability, a strong balance sheet and leading market position. Fitch also said the health system has broad reach in a service area that has high demand for acute care services. 

5. Froedtert Health in Wauwatosa, Wis., has an “AA” rating and stable outlook from Fitch. The credit rating agency said the rating reflects the health system’s solid market position and robust liquidity position, as well as its strong utilization trends and operational metrics in recent years. 

6. Indiana University Health in Indianapolis has an “AA” rating and positive outlook from Fitch. The credit rating agency said the health system has a long track record of strong operating margins and a “remarkably solid” balance sheet. The system also benefits as the largest healthcare system and academic medical center in Indiana, according to Fitch.

7. Vineland, N.J.-based Inspira Health has an “AA-” rating and stable outlook from Fitch. The credit rating agency said the rating is supported by Inspira’s stable financial profile, leading market position, large medical staff and expansive outpatient network. Fitch also said Inspira saw a strong operating performance through the construction and transition of its new campus, an IT implementation and through the peak of the pandemic.

8. Sanford Health in Sioux Falls, S.D., has an “AA-” rating and stable outlook from Fitch. The credit rating agency said the “AA-” rating reflects Sanford’s leading inpatient market share in multiple states and strong financial profile. Fitch also said Sanford’s growing health plan and plan for continued improvement and balance sheet growth are credit positives. 

9. Spectrum Health in Grand Rapids, Mich., has an “Aa3” rating and stable outlook with Moody’s. The credit rating agency said the health system has a stable operating performance and strong balance sheet metrics. In particular, the system generated positive margins even without federal aid in fiscal year 2020. Moody’s said the health system will continue to benefit from a strong market share for patient care in western Michigan. 

10. Texas Children’s Hospital in Houston has an “Aa2” rating and stable outlook from Moody’s. The credit rating agency said the children’s hospital network benefits from favorable leverage metrics and strong liquidity. Moody’s also said Texas Children’s has very strong patient demand and high acuity services as the academic medical center for Baylor College of Medicine’s pediatric department in Houston.