Debt default risk for hospitals drops from 2020 high

UAE firms face default risk as customers delay payments | Business Insurance

The likelihood that U.S. hospitals will default on debt within the next year fell significantly since the 2020 peak amid the early days of the pandemic, according to a March 10 report from S&P Global Market Intelligence. 

In 2020, the median default odds jumped to 8.1 percent. However, as of March 8, the probability of default rate fell to 0.9 percent. 

Samuel Maizel, a partner from law firm Dentons, told S&P Global that many hospitals operate on razor-thin margins, and they are seeing less cash flow amid the pandemic as patients shy away from receiving care, but stimulus funds should help avert a tidal wave of hospital bankruptcies in the next year.

“They’re sitting on a lot of cash, which gives them a cushion, even though they’re continuing to lose money,” Mr. Maizel told S&P Global. 

S&P said that as stimulus funds dry up other pressures may challenge healthcare facilities.

Chicago’s Mercy Hospital has a potential buyer

Mercy Hospital, denied approval to close in Bronzeville, files for  bankruptcy. Mayor Lightfoot calls it 'devastating for that community.' -  Chicago Tribune

Mercy Hospital & Medical Center in Chicago has secured a nonbinding purchase agreement with Insight Chicago just months before it is slated to close its doors, according to the Chicago Tribune.

Under terms of the deal, still being negotiated, Insight Chicago would operate Mercy Hospital as a full-service, acute care facility. Insight Chicago is a nonprofit affiliated with a Flint, Mich.-based biomedical technology company.

The deal is subject to regulatory approval, but if it goes through, it would keep the 170-year-old safety-net hospital open. 

Securing a potential buyer is the latest in a series of events related to the Chicago hospital.

On Feb. 10, Mercy filed for bankruptcy protection, citing mounting financial losses and losses of staff that challenged its ability to provide safe patient care. 

The bankruptcy filing came just a few weeks after the Illinois Health Facilities and Services Review Board rejected a plan from Mercy’s owner, Trinity Health, to build an outpatient center in the neighborhood where it planned to close Mercy. The same board unanimously rejected Livonia, Mich.-based Trinity’s plan to close the hospital in December.

The December vote from the review board came after months of protests from physicians, healthcare advocates and community organizers, who said that closing the hospital would create a healthcare desert on Chicago’s South Side. 

Mercy said that until the pending deal with Insight Chicago is signed and approved by regulators, it still plans to close the facility. If the agreement is reached before the May 31 closure, Mercy will help transition services to Insight Chicago, according to the Chicago Sun-Times. 

Insight Chicago told local NPR affiliate WBEZ that it has a difficult task ahead to build community trust and address the financial issues that have plagued the Chicago hospital.

“I think the big main point we want to understand between now and then is the community needs to build trust with the community, and I think to build trust we have to tell the truth and be sincere,” Atif Bawahab, chief strategy officer at Insight, told WBEZ. “And there’s a reality of the situation as to why [the hospital] is going bankrupt and why several safety net hospitals are struggling.”

In its bankruptcy filing, Mercy said its losses have averaged about $5 million per month and reached $30.2 million for the first six months of fiscal year 2021. The hospital also said it has accumulated debt of more than $303.2 million over the last seven years, and the hospital needs more than $100 million in upgrades and modernizations.

Genesis HealthCare plans to cut $236M in debt, delist stock from NYSE

Genesis Corporate Headquarters | Paul Risk Construction

Kennett Square, Pa.-based Genesis HealthCare will institute a three-pronged restructuring plan to improve its financial metrics and cut debt by $236 million, the company said March 3. 

Genesis HealthCare is a holding company with subsidiaries that provide services to more than 325 skilled nursing facilities and assisted or senior living communities in 24 states. 

As part of its financial improvement strategy, Genesis agreed to end master lease agreements at 51 assisted or senior living facilities leased from Welltower and transition them to new operators. Genesis expects to receive $86 million from the deal, which it will use to repay a portion of its debt obligations to Welltower. 

Genesis will also receive $170 million in debt reduction from Welltower after completing the transaction. 

The company also signed a definitive agreement for a capital infusion of $50 million from ReGen Healthcare, which ups its ownership interest in Genesis to 25 percent.  

The third part of the strategy is that it will voluntarily delist its Class A common stock from the New York Stock Exchange and deregister its common stock under the Securities Exchange Act of 1934.

“The severity of the pandemic dramatically impacted patient admissions, revenues and costs, compounding the pressures of our long-term, lease-related debt obligations,” said Genesis CEO Robert Fish. “These restructuring transactions improve the financial and operational stability of the company significantly and build on the encouraging signs we are seeing as COVID-19 case rates continue to materially decline and residents, patients and staff are vaccinated.”

State-by-state breakdown of 354 rural hospitals at high risk of closing

https://www.beckershospitalreview.com/finance/state-by-state-breakdown-of-354-rural-hospitals-at-high-risk-of-closing.html?utm_medium=email

What Rural Hospital Closures Mean for EMS Professionals

Twenty-five percent of the 1,430 rural hospitals in the U.S. are at high risk of closing unless their finances improve, according to an annual analysis from Guidehouse, a consulting firm. 

The 354 rural hospitals at high risk of closing are spread across 40 states and represent more than 222,000 annual discharges. According to the analysis, 287 of these hospitals — 81 percent — are considered highly essential to the health and economic wellbeing of their communities.

Several factors are putting rural hospitals at risk of closing, according to the analysis, which looked at operating margin, days cash on hand, debt-to-capitalization ratio, current ratio and inpatient census to determine the financial viability of rural hospitals. Declining inpatient volume, clinician shortages, payer mix degradation and revenue cycle management challenges are among the factors driving the rural hospital crisis.

The Guidehouse study analyzed the financial viability of rural hospitals prior to the COVID-19 pandemic, and the authors noted that the rural hospital crisis could significantly worsen due to the pandemic or any downturn in the economy. 

Here are the number and percentage of rural hospitals at high risk of closing in each state based on the analysis:

Tennessee
Rural hospitals at high risk of closing: 19 (68 percent)

Alabama
Rural hospitals at high risk of closing: 18 (60 percent)

Oklahoma
Rural hospitals at high risk of closing: 28 (60 percent)

Arkansas
Rural hospitals at high risk of closing: 18 (53 percent)

Mississippi
Rural hospitals at high risk of closing: 25 (50 percent)

West Virginia
Rural hospitals at high risk of closing: 9 (50 percent)

South Carolina
Rural hospitals at high risk of closing: 4 (44 percent)

Georgia
Rural hospitals at high risk of closing: 14 (41 percent)

Kentucky
Rural hospitals at high risk of closing: 18 (40 percent)

Louisiana
Rural hospitals at high risk of closing: 11 (37 percent)

Maine
Rural hospitals at high risk of closing: 7 (33 percent)

Indiana
Rural hospitals at high risk of closing: 8 (31 percent)

Kansas
Rural hospitals at high risk of closing: 26 (31 percent)

New Mexico
Rural hospitals at high risk of closing: 3 (30 percent)

Michigan
Rural hospitals at high risk of closing: 13 (29 percent)

Missouri
Rural hospitals at high risk of closing: 10 (26 percent)

Virginia
Rural hospitals at high risk of closing: 5 (25 percent)

Oregon
Rural hospitals at high risk of closing: 4 (24 percent)

California
Rural hospitals at high risk of closing: 6 (23 percent)

North Carolina
Rural hospitals at high risk of closing: 6 (23 percent)

Florida
Rural hospitals at high risk of closing: 2 (22 percent)

North Dakota
Rural hospitals at high risk of closing: 7 (21 percent)

Ohio
Rural hospitals at high risk of closing: 6 (20 percent)

Vermont
Rural hospitals at high risk of closing: 2 (20 percent)

Idaho
Rural hospitals at high risk of closing: 4 (19 percent)

Pennsylvania
Rural hospitals at high risk of closing: 4 (19 percent)

Washington
Rural hospitals at high risk of closing: 5 (18 percent)

Wyoming
Rural hospitals at high risk of closing: 3 (18 percent)

Texas
Rural hospitals at high risk of closing: 14 (16 percent)

Colorado
Rural hospitals at high risk of closing: 4 (14 percent)

Illinois
Rural hospitals at high risk of closing: 7 (14 percent)

Montana
Rural hospitals at high risk of closing: 7 (14 percent)

Nebraska
Rural hospitals at high risk of closing: 8 (13 percent)

New York
Rural hospitals at high risk of closing: 4 (13 percent)

Iowa
Rural hospitals at high risk of closing: 9 (12 percent)

Minnesota
Rural hospitals at high risk of closing: 8 (11 percent)

Alaska
Rural hospitals at high risk of closing: 1 (10 percent)

Arizona
Rural hospitals at high risk of closing: 1 (10 percent)

New Hampshire
Rural hospitals at high risk of closing: 1 (9 percent)

Wisconsin
Rural hospitals at high risk of closing: 5 (9 percent)

 

 

 

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.”