Moody’s Outlook Darkens for Team Health

https://www.healthleadersmedia.com/finance/moodys-outlook-darkens-team-health?spMailingID=16126344&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1701043585&spReportId=MTcwMTA0MzU4NQS2

UnitedHealth will cancel two-thirds of Team Health’s in-network contracts over the next 11 months.


KEY TAKEAWAYS

Moody’s Investors Service on Friday downgraded the outlook for Team Health from stable to negative.

UnitedHealth has also significantly reduced its payments to Team Health for out-of-network services.

Team Health has accused UnitedHealth of ‘aggressive and inappropriate behavior.’

Team Health Holdings Inc.’s ongoing contract fight with UnitedHealth Group Inc. is hurting the bond status on the Knoxville-based hospital staffing and management company.

Moody’s Investors Service on Friday downgraded the outlook for Team Health from stable to negative, after affirming the company’s B3 Corporate Family Rating and B3-PD Probability of Default Rating.

“The change of outlook reflects rising uncertainty around Team Health’s ability to reduce leverage given its recently disclosed dispute with UnitedHealth Group Inc., one of its largest commercial payors,” Moody’s said.

Moody’s also affirmed the B2 rating on Team Health’s senior secured credit facilities and Caa2 rating on its unsecured notes.

UnitedHealth told Team Health last month that it will cancel two-thirds of its in-network contracts with Team Health between October 2019 until July 2020.

UnitedHealth has also significantly reduced its payments to Team Health for out-of-network services, Moody’s noted.

Team Health provided a statement to HealthLeaders suggesting that it is lawyering up in preparation for more litigation with UnitedHealth.

“As Team Health continues to see more aggressive and inappropriate behavior by payors to either reduce, delay, or deny payments, we have increased our investment in legal resources to address specific situations where we believe payor behavior is inappropriate or unlawful,” the company said.

“To date, Team Health has been successful in getting reasonable reimbursements as a result of that litigation effort. Immediately following their most recent termination, United reached out to Team Health and we have begun negotiations,” Team Health said.

The hospital company said that, so far in 2019, it has successfully resolved eight lawsuits and has filed another 13 lawsuits.

“As United continues to arbitrarily terminate contracts, we expect to file more lawsuits for unfair payment practices and unjust enrichment – and despite United’s urgings we will not surprise bill patients to make up the difference,” Team Health said.

While Moody’s said it believes that Team Health and United will eventually reconcile, “modified contracts are likely to come with lower reimbursement rates for Team Health, which will reduce profitability.”

“Further, a drawn-out negotiation process may lead to disruption to hospital customers and contract losses,” Moody’s said.

“While there is a range of potential outcomes for Team Health, the company’s very high leverage raises the risk that even a modest reduction in profitability will significantly raise debt/EBITDA,” Moody’s said.

TeamHealth’s pro forma debt to EBITDA was estimated by Moody’s at approximately 8.2 times on June 30.

Moody’s noted that the B3 rating is supported by Team Health’s ability to generate positive cash flow of more than $100 million a year, and that the company’s liquidity remains solid.

“The company has a sizable cash balance ($299.4 million as of 6/30/2019), near full availability of its $400 million revolver and no near-term debt maturities,” Moody’s said.

“The company has also shown early signs of progress in executing its business turnaround. This affords the company some flexibility to absorb a modest negative development with respect to contract negotiations with UnitedHealth,” Moody’s said.

Even with that, Moody’s said, the reduced payments from UnitedHealth and potentially other insurers will create a “meaningful decline in free cash flow (that) will likely lead to a rating downgrade.”

“Reduced free cash flow would not only limit the company’s ability to repay debt, but also its ability to execute its tuck-in acquisition strategy,” Moody’s said.

“As United continues to arbitrarily terminate contracts, we expect to file more lawsuits for unfair payment practices and unjust enrichment – and despite United’s urgings we will not surprise bill patients to make up the difference.”

 

 

 

11 hospitals with strong finances

https://www.beckershospitalreview.com/finance/11-hospitals-with-strong-finances-081219.html?origin=rcme&utm_source=rcme

Here are 11 hospitals and health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.

1. Altamonte Springs, Fla.-based AdventHealth has an “Aa2” rating and stable outlook with Moody’s. The health system has strong margins, low operating leverage and solid cash levels, according to Moody’s.

2. Children’s Healthcare of Atlanta has an “Aa2” rating and stable outlook with Moody’s. The health system has strong margins, and its good management discipline and detailed planning capabilities will drive consistent operating performance, according to Moody’s.

3. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has a leading market position in the broader northern Virginia region and strong operating cash flow margins, according to Moody’s.

4. IHC Health Services, the borrowing group of Salt Lake City-based Intermountain Healthcare, has an “Aa1” rating and stable outlook with Moody’s. Intermountain’s exceptional credit quality is supported by low debt levels, strong cash levels, solid operating performance and its leading market position, according to Moody’s.

5. Oakland, Calif.-based Kaiser Permanente has an “AA-” rating and stable outlook with Fitch and S&P. Kaiser has a robust integrated business model, strong operational cash flow and ample unrestricted reserves, according to S&P.

6. Bryn Mawr, Pa.-based Main Line Health has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading market position in the Philadelphia suburbs, strong balance sheet measures and a modest debt load, according to Moody’s.

7. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The health system has a prominent market position in the broader Chicago region because of its strong brand, and its consolidated operating model and comprehensive IT systems will allow it to execute growth strategies while maintaining good margins, according to Moody’s.

8. Renton, Wash.-based Providence St. Joseph Health has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with Fitch. The health system has a large service area, a revenue base of more than $24 billion and an integrated care delivery platform, which includes health plans, employed physicians and inpatient and outpatient services, according to Moody’s.

9. Broomfield, Colo.-based SCL Health has an “AA-” rating and stable outlook with S&P. The health system has ample liquidity and a healthy balance sheet, according to S&P.

10. San Diego-based Scripps Health has an “Aa3” rating and stable outlook with Moody’s. The health system has strong market share within San Diego County, a history of strong and stable management, and favorable balance sheet measures, according to Moody’s.

11. Tahoe Forest Hospital District, which operates Tahoe Forest Hospital in Truckee, Calif., and Incline Village (Nev.) Community Hospital, has an “Aa3” rating and stable outlook with Moody’s. The hospital district has a healthy cash position, low debt burden and a large and increasing tax base, according to Moody’s.

 

Not-for-profit hospitals are financially resilient due to strong management, S&P Global Ratings says.

https://www.healthcarefinancenews.com/news/not-profit-hospitals-and-health-systems-have-shown-financial-resilience-due-strong-management?mkt_tok=eyJpIjoiTmpJME5qVTNOVEU1TXpRdyIsInQiOiJDdUIxQ1NKdng1b0FkQ1wvQlwvNFBTc1JIbmVwYUZOeUhCZ3VlNlZzdmhNbkhBQlhnXC9JeTI4c2NDeE80REk0YWJ1Nk1jSzl4QjFDbjFMTkxKdmVCblY1RUlSYTIwUmlhSEJ6VXpkOUZZdytUWDhaV1poaEljcVh5ZFdEOUdVZlQzZyJ9

The broad balance sheet shows hospitals are improving financial strength and flexibility compared to two decades ago.

Not-for-profit hospitals and health systems are financially keeping up with changes in the healthcare landscape, according to a new S&P Global Ratings report.

S&P Global Ratings said it believes the not-for-profit healthcare sector has been incredibly resilient over the past two decades, in large part due to strong management and governance.

The broad balance sheet shows improved financial strength and flexibility compared to two decades ago, as is also the case for maximum annual debt service coverage.

Hospitals have done this throughout a time when changes in government policy, reimbursement and the move to value-based care have been factors in their operating performance and financial position. The report shows more variability in operating revenue and excess margins. 

S&P Global looked at providers rated from BBB+ to AA. The stronger providers have seen margin improvement, while weaker rated providers have been generally stable with some pockets of weakness at the lowest reported rating levels, the report said.

WHY THIS MATTERS

Health system challenges include increasing levels of competition and disruption; consumerism and the heightened focus on quality measures and outcomes; the rapid growth in technology and big data analytics; the rise of population health and changes in payment delivery models; and a fundamental shift in how and where patients are treated.

“To be successful, provider management teams must adapt and adjust or run the risk of being left behind,” the credit analysts said.

A factor benefiting health systems has been the low interest rate environment. This has allowed hospitals to finance strategic capital assets, while keeping carrying costs at very manageable levels.

Industry consolidation has had a favorable impact on enterprise profiles, the report said.  While ample “horizontal” competition exists for both hospitals and health systems, in many markets consolidation has made it more manageable.

But competition between hospitals and health systems and new market entrants seeking to control niche services or some aspect of ambulatory care services is presenting new and rapidly evolving threats to enterprise profiles, the report said.

OUTCOMES

Net patient service revenue has risen across all S&P rated categories for both stand-alone and system providers. This is due to a variety of reasons, including the addition of more business lines such as physician and insurance services, and increased industry consolidation;

Operating and excess margins are more complicated, highlighting the ebb and flow of industry trends, including increased joint venture and affiliation activity and investment market volatility.

Maximum annual debt service coverage has grown in all but the weakest rated levels, highlighting an improving balance between operational performance and debt.

Growth in days’ cash on hand has been a universal success even as capital expenditures remain robust.

Debt levels have been favorable with an improved cushion ratio and declining debt as a percentage of capitalization, both well-established trends.

TREND

Momentum continues to build for major legislative and regulatory changes at both the national and state level.

Many of the hospitals and health systems in S&P Global’s rated portfolio have navigated through numerous changes. Historically, a review of ratios over time demonstrates that providers have responded well to change as a group, although results have varied among individual organizations.

While credit quality can and will change over time,  the majority of the rated portfolio is well-positioned to compete effectively as new strategies are required, the analysts said.

S&P Global Ratings analyzes and publishes not-for-profit healthcare median ratios annually, and has been doing so for over 20 years.

ON THE RECORD

“In our view, senior leadership and management teams have provided guidance and direction through a series of difficult and changing periods and have emerged as generally stronger organizations from a financial profile standpoint,” the credit analysts said. “We believe the vast majority of rated hospitals and health systems have the financial discipline and expertise to navigate the challenges over the next decade and beyond, and while there may be some movement in underlying trends in these key metrics, the overall financial outlook, barring any significant shocks from policy or macroeconomic shifts, should remain generally consistent.”