The nonprofit health system narrowed its operating loss while continuing to grapple with financial and policy pressures as it progresses towards profitability.
KEY TAKEAWAYS
Providence cut its operating loss in the second quarter to $21 million, improving from a $123 million loss a year ago.
Revenue rose 3% year-over-year to $7.91 billion, driven by higher patient volumes and better commercial rates.
The health system faces ongoing “polycrisis” challenges, including rising supply costs, staffing mandates, insurer denials, and looming Medicaid cuts, which have already prompted layoffs, hiring pauses, and leadership restructuring.
Providence made promising strides toward financial sustainability in the second quarter as higher patient volumes helped trim an operating loss that has weighed heavily on its balance sheet.
Yet the Renton, Washington-based health system warned that a compounding set of external pressures, which it labeled a “polycrisis,” still poses formidable challenges to its mission and future.
For the three months ended June 30, the nonprofit reported an operating loss of $21 million, equating to an operating margin of –0.3%, representing a marked improvement from the $123 million loss (–1.6%) posted over the same period in 2024. Compared with the previous quarter, the gain was even starker as Providence trimmed its deficit by $223 million. Through the first six months of the year, the health system had an operating loss of $265 million (-1.7%).
Revenue growth was fueled by higher patient volumes and improved commercial rates, Providence highlighted. Operating revenue rose 3% year-over-year to $7.91 billion as inpatient admissions (up 3%), outpatient visits (up 3%), case mix–adjusted admissions (up 3%), physician visits (up 8%), and outpatient surgeries (up 5%) all contributed.
On the expense side, Providence managed a 2% rise in operating costs to $7.93 billion, thanks largely to productivity gains, including a 43% reduction in agency contract labor. However, supply costs swelled by 9% and pharmacy expenses jumped by 12% year-over-year.
Providence, along with the healthcare industry at large, faces what CEO Erik Wexler called a “polycrisis” due to a mix of inflation, tariff-driven supply pressures, new state laws on staffing and charity care, insurer reimbursement delays and denials, and looming federal Medicaid cuts, especially from the One Big Beautiful Bill Act, which the health system said “threatens to intensify health care pressures.”
Those factors are significantly influencing hospitals’ and health systems’ decision-making. Providence has made staffing adjustments that include cutting 128 jobs in Oregon earlier this month, a restructuring in June that eliminated 600 full-time equivalent positions, apause on nonclinical hiring in April, and leadership reorganization since Wexler took over as CEO in January.
Accounts receivable is another area that has been indicative of headwinds, with Providence noting that while it improved in the second quarter, it “remains elevated compared to historical trends.”
Even with the roadblocks in its path, Providence is working towards profitability after being in the red for several years running.
“I’m incredibly proud of the progress we’ve made and grateful to our caregivers and teams across Providence St. Joseph Health for their continued dedication,” Wexler said in the news release. “The strain remains, especially with emerging challenges like H.R.1, but we will continue to respond to the times and answer the call while transforming for the future.”
For the past six years, Kaufman Hall has been publishing its monthly National Hospital Flash Report, which is designed to provide a pulse on the health of the healthcare industry and to highlight meaningful and pertinent trends for hospital and health system leaders. The data that powers the report is taken from over 1,300 hospitals, which are reflective of all geographic locations, hospital sizes and types. To ensure the content is digestible and understandable, Kaufman Hall aggregates the data into larger cohorts and measures a select set of key metrics that are most important for understanding the health of the industry. Industry groups and system leaders use these reports both for peer review purposes but also to paint an overall story for their boards and communities.
Through a detailed review of the Flash Report data, each month Kaufman Hall develops findings that healthcare leaders may find instructive as they determine how to adjust to changing market conditions. In 2024 it was reasonably obvious that there was a widening divide between the highest performing hospitals and the lowest performers.While a significant cadre of hospitals and health systems have recovered to pre-Covid financial success, 37% of American hospitals continue to lose money.
We are often asked what the successful hospitals are doing—and importantly—what the data tell us about those that are less successful. Using 2024 data, we have drawn two important conclusions around the role of leading management teams and what separates their organizations from others.
These teams have:
A sophisticated and balanced approach to the management of departmental performance: and
An understanding of the management of shared service costs.
A sophisticated and balanced approach to the management of departmental performance
It turns out that current data demonstrate that the management of departmental performance is critical to overall hospital financial performance but in a more nuanced manner than expected.
Our analysis was conducted as follows:
First, we looked at data across hospitals nationwide to understand the difference in departmental performance between top and bottom performing hospitals.
Second, we ranked each department in a hospital from 0 to 100, with 100 representing the best performance based on expense per unit of service.
Third, we then grouped all hospitals based on their bottom-line operating margin into three cohorts: those hospitals that fell into the bottom quartile of financial performance, those between the bottom and top quartile, and those in the top quartile.
Finally, we created a histogram of the average composition of departmental performance across each of the three margin cohorts.
The findings demonstrate that organizations with top financial performance have departmental results that look like a normal curve around the median. Said more simply, in top-performing hospitals the number of lower-performing departments is roughly equal to the number of higher-performing departments, with most departments operating near the national departmental medians. In contrast, hospitals with the lowest financial performance show a much greater number of departments operating with high cost per units of service and a few departments that operate extremely efficiently.
It appears that poorer performing hospitals focus on the management of the largest clinical and nursing areas. These are the departments that tend to be the “easiest” to manage because they are the “easiest” to benchmark. But the data show that these same hospitals tend to have poor performance over the remainder of the departments, which leads to poor financial results for the total hospital.
Hospitals with top quartile financial performance tend to manage all departments as close to the benchmark median as possible. Such a result means spending more managerial time on the harder to manage departments, especially those departments that are more “unique” and where overall performance is harder to characterize and benchmark.
The observations that can be drawn here are important and as follows:
First, oversight and management of individual departments is critical to the financial success of the entire hospital or system.
Second, the overall organizational structure of departmental administration is critical as well. The more complicated your departmental structure and the more individual departments you maintain and administer, the more difficult it will be to manage a majority of departments to “median” results.
The data suggest a perhaps unexpected operational conclusion. The achievement of median national departmental benchmarks is leading to overall positive hospital financial operating margins. This outcome offers significant budgeting advice and over the course of a fiscal year should prove to be a remarkably useful administrative lesson.
Understanding the management of shared service costs
Given the growing costs of shared services and related overhead, Kaufman Hall wanted a closer look at how well hospital organizations were scaling shared service costs related to the organization’s size. Unexpectedly, shared service costs were not highly correlated to the size of the hospital or hospital system. This suggests that the management of shared service costs on a per unit basis is difficult and that this aspect of expense management requires diligent focus to enact and sustain cost change. Our data often indicates a wide variation of cost performance among shared services of similar types within different large organizations. This suggests that standardization of such services is not well developed and that there may be a certain level of wishful thinking that increases in organizational size will automatically correlate to lower per unit costs.
The data did indicate, however, that larger organizations can achieve higher performance over smaller organizations relative to shared service expenses. This is an indication that size can be leveraged for superior performance but that such results are not automatic. The takeaway here is that the total spend for shared service functions is very substantial and growing. In that regard, it is most important to proactively address expenses in these areas, build appropriate management plans, and understand how to focus on the right buttons and levers. To the extent that organizations are assuming that growth (both organic and inorganic) will create economies of scale with the overall shared service apparatus, the data demonstrate that such an outcome is possible but only with strong planning and execution.
Operating hospitals in 2025 is flat-out hard and likely to get harder over the year. Hospital executives right now should use every managerial advantage available. A close look at the National Hospital Flash Report data identifies important relationships that provide for a more nuanced and sophisticated operation of both individual departments and the bundle of shared services. The data clearly demonstrate that better results in both these areas will lead to improved financial performance within the hospital overall. The data also indicate key managerial strategies that will lead to such improvement.
A bipartisan Senate report on private equity ownership of two health systems shows PE investment puts a priority of profit over patient health and hospital finances.
A yearlong investigation found that patient care deteriorated at both systems, while private equity owners received millions, according to the Senate Budget Committee’s bipartisan staff report, “Profits Over Patients: The Harmful Effects of Private Equity on the U.S. Health Care System.”
The investigation was led by Senate Budget Committee Chairman Sheldon Whitehouse, D-R.I., and Ranking Member Charles E. Grassley, R-Iowa.
WHY THIS MATTERS
The report centered on the hospital Ottumwa Regional Health Center in Iowa and its operating company, Lifepoint Health in Tennessee.
Private equity company Apollo Global Management owns Lifepoint Health.
The investigation expanded to include other entities, including PE firmLeonard Green & Partners and hospital operator Prospect Medical Holdings, in which Leonard Green & Partners held a majority stake. Leonard Green & Partners (LGP) is a private equity firm in Los Angeles that owns hospitals under Prospect Medical Holdings (PMH).
“LGP and PMH’s primary focus was on financial goals rather than quality of care at their hospitals, leading to multiple health and safety violations as well as understaffing and the closure of several hospitals,” the report said.
The investigation originated from questions over the role, if any, private equity played in a series of patient sexual assaults by a nurse practitioner at the Iowa hospital. In 2022, a nurse practitioner fatally overdosed on drugs acquired at the hospital. Police discovered the nurse had sexually assaulted nine incapacitated female patients over a two-year period, the report said.
Prospect Medical Holdings owns and operates hospitals in urban and suburban areas, primarily on the East and West Coasts, including Connecticut, Rhode Island, Pennsylvania and California.
It is a previously public traded company that went private in 2010 when LGP acquired a 61% majority stake. During the course of LGP’s majority ownership, Prospect Medical Holdings acquired 16 hospitals over a span of four years. PMH has operated a total of 21 unique hospitals, the report said.
Apollo has a 97% ownership stake in Lifepoint Health, a company that owns and operates acute care hospitals in predominantly rural areas. This includes Ottumwa Regional Health Center. Apollo owns around 220 hospitals nationwide, making it the single largest private equity owner of hospitals in the United States, the report said.
Ottumwa has been under PE ownership since 2010, when it was acquired by the PE-owned hospital operator RegionalCare, which was later acquired by Apollo.
KEY FINDINGS
The report’s key findings show that LGP controlled the Prospect Medical Holding board of directors, which incentivized management to satisfy financial goals regardless of patient outcomes.
“According to documents obtained by the committee, discussion amongst PMH and LGP leadership during board meetings centered around profits, costs, acquisitions, managing labor expenses and increasing patient volume – with little or no discussion of patient outcomes or quality of care.”
Current PMH leadership has overseen the closure of eight hospitals, with three-fourths coming during or directly after LGP’s majority ownership, including four in Texas and two in Pennsylvania.
Several hospitals suffered from labor cuts, decreased patient capacity, unsafe building maintenance and financial distress, the report said.
Despite this, LGP took home $424 million of the $645 million that PMH paid out in dividends and preferred stock redemption, in addition to over $13 million in fees, leaving PMH in severe financial distress.
In order to pay investors dividend distributions, PMH was forced to take on hundreds of millions of dollars in debt, running out of cash and defaulting on its loans, the report said.
ORHC’s PE owned companies, including Lifepoint Health, have failed to fulfill at least seven promises, including legally binding ones made to Ottumwa, including those related to growth, physician recruitment, routine capital expenditures, charity care, patient satisfaction and continuation of services.
Patient volumes have decreased, likely due to long wait times in the ER, outgoing transfers, insufficient staffing and a lack of specialists, the report said. This has also resulted from having a poor reputation in the community.
Because of financial harm, OTHC is dependent on Lifepoint Health to pay its expenses.
However, Lifepoint pays Apollo $9.2 million annually in management fees, as well as a 1% transaction fee each time Lifepoint completes an acquisition, which included a $55 million fee in relation to the acquisition of Lifepoint Health in 2018.
THE LARGER TREND
PE and other private funds had less than $1 trillion in managed assets in 2004, but now manage more than $13 trillion globally. PE firms create affiliated funds with money raised from investors, such as pension funds, foundations and insurance companies. The intention is generating returns for their investors within a short period of time.
PE has grown in healthcare. In the 2010s investors spent more than $1 trillion. By 2021 PE investment had reached an all-time high of 515 deals valued at $151 billion.
ON THE RECORD
“Recent peer reviewed studies have generally found negative consequences for general acute care hospitals during the first three years of PE ownership as compared to non-PE owned hospitals, including lower quality of care, increased transfers to other hospitals, decreased staffing and higher prices,” the report said.
Here are 67 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.
AdventHealth has an “AA” rating and stable outlook with Fitch. The rating is based on the Altamonte Springs, Fla.-based system’s competitive market position—especially in its core Florida markets—and its financial profile, Fitch said.
Advocate Health members Advocate Aurora Health and Atrium Health have “Aa3” ratings and positive outlooks with Moody’s. The ratings are supported by the Charlotte, N.C.-based system’s significant scale, strong market share across several major metro areas, and good financial performance and liquidity, Moody’s said.
AnMed Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Anderson, S.C.-based system’s strong and stable operating performance and leading market position in a sound service area, Fitch said.
Ann & Robert H. Lurie Children’s Hospital of Chicago has an “AA” rating and stable outlook with Fitch. The rating is supported by the system’s strong balance sheet with low leverage ratios derived from modest debt, Fitch said.
Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Morristown, N.J.-based system’s fundamental strengths, including strong operating performance with high single digit operating cash flow margins and favorable liquidity of over 300 days cash on hand, Moody’s said.
Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.
BayCare Health System has an “AA” rating and stable outlook with Fitch. The Clearwater, Fla.-based system on June 30 moved to a new corporate legal structure, replacing a joint operating agreement between multiple hospitals that were responsible for the creation of BayCare in 1997. Fitch views the dissolution of the JOA and the move to the new structure as a credit positive.
Beacon Health System has an “AA-” rating and stable outlook with Fitch. Fitch said the rating reflects the strength of the South Bend, Ind.-based system’s balance sheet.
Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based system has a favorable and stable payor mix, leading or secondary market share position in nine of its 11 U.S. markets with improving market share positions in eight, and adequate cash flows to support the system’s strategic plans, Fitch said.
BJC Health System has an “Aa2” rating and stable outlook with Moody’s. The St. Louis-based system reflects its reputation as a leading academic medical center with a long-standing affiliation with Washington University School of Medicine, Moody’s said.
Carle Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Urbana, Ill.-based system’s distinctly leading market position over a broad service area and Fitch’s expectation that the system will sustain its strong capital-related ratios in the context of the system’s midrange revenue defensibility and strong operating risk profile assessments.
Carilion Clinic has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Roanoke, Va.-based system’s scale, regional significance as a tertiary referral system with broad geographic capture, and a highly integrated physician base with a well-defined culture, Moody’s said.
Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said.
Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.
Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals, and leading market position as its market’s only dedicated pediatric provider, Moody’s said.
Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence, and pediatric trauma status, Fitch said.
Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position, and dominant pediatric market position, Fitch said.
Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said.
Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the system’s strength as an international brand in highly complex clinical care and research and centralized governance model, the ratings agency said.
Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth, Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.
Corewell Health has an “Aa3” rating and stable outlook with Fitch. The rating reflects the Grand Rapids and Southfield, Mich.-based system’s significant scale as a provider and payer in Michigan, Moody’s said. The organization also has good and stable financial performance and liquidity.
El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said.
Froedtert ThedaCare Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Milwaukee-based system’s solid market position, track record of strong utilization and operations, and strong financial profile, Fitch said.
Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by its strong operating risk assessment, leading market position in its immediate service area, and strong financial profile, Fitch said.
Holland (Mich.) Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects Holland Hospital’s stable and strong liquidity and capital-related metrics despite sector-wide operating pressures, Fitch said.
Indiana University Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Indianapolis-based health system’s sustained track record of strong operating margins, ratings agency said.
Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The Falls Church, Va.-based system’s rating is anchored by its role as one of the largest health systems in Virginia with a leading market position in a rapidly growing region with unusually high commercial business, Moody’s said.
Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center).
JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said.
Kaiser Permanente has an “AA-” rating and stable outlook with Fitch. The Oakland, Calif.-based system’s rating is driven by its strong financial profile, bolstered by a large and diversified revenue base, Fitch said.
Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said.
Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the Rochester, Minn.-based system’s preeminent reputation for clinical care and research, including new discoveries and cutting-edge treatment, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said.
McLeod Health has an “AA-” rating and stable outlook with Fitch. The Florence, S.C.-based system maintains a leading and growing market position in its primary service area and is expanding the Carolina’s Forest campus in an area that is expected to experience rapid growth over the coming years, Fitch said.
Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.
Memorial Healthcare System has an “Aa3” rating and stable outlook with Moody’s. Moody’s said the rating reflects that the Hollywood, Fla.-based system will continue to benefit from good strategic positioning of its large, diversified geographic footprint.
Memorial Hermann Health System has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Houston-based system’s leading and expanding market position and strong demand in a growing region, Moody’s said.
Methodist Health System has an “Aa3” rating and stable outlook with Moody’s. Moody’s said the rating reflects the Dallas-based system’s consistently strong operating performance, excellent liquidity, and very good market position.
Monument Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Rapid City, S.D.-based system has a dominant inpatient market position as the leading acute care provider in its geographically broad primary service area
Nationwide Children’s Hospital has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the Columbus, Ohio-based system’s strong market position in pediatric services, growing statewide and national reputation, and continued expansion strategies.
Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said.
North Mississippi Health Services has an “AA” rating and stable outlook with Fitch. The rating reflects the Tupelo-based system’s strong cash position and strong market position with a leading market share in its primary services area, Fitch said.
Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the Chicago-based system’s growing market position, single operating model and financial discipline, Moody’s said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels.
Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research, and clinical capabilities, Moody’s said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.
Parkland Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Dallas-based system will remain the leading provider of public (safety net) services in the vast Dallas County service area, supported by its tax levy.
Phoenix Children’s has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s strong cash flow generation that has significantly improved its balance sheet in recent years, Fitch said.
Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said.
Rady Children’s Hospital has an “Aa3” rating and stable outlook with Moody’s. The San Diego-based system’s rating reflects its well-established strengths, including an “extremely high” market share in all of San Diego County, Moody’s said.
Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said.
Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January.
Salem (Ore.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing position in a stable service area with good population growth and demand for acute care services, Fitch said.
Sarasota (Fla.) Memorial Health Care System has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s leading market position in a growing service area, robust historical operating cash flow levels and strong liquidity position, Fitch said.
Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said.
St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position, and strong financial management, Fitch said.
St. Tammany Parish Hospital has an “AA-” rating and stable outlook with Fitch. The Covington, La.-based system has a strong operating risk assessment and very strong financial profile supported by consistently robust operating cash flows, Fitch said.
Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand, and its location in an affluent and well-insured market, Moody’s said.
UChicago Medicine has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s strong financial profile in the context of its broad and growing reach for high-acuity services, Fitch said.
University Health has an “AA+” rating and stable outlook with Fitch. The San Antonio-based system’s outlook is based on the Bexar County Hospital District’s significant tax margin, good cost management, and strong leverage position relative to its liquidity and outstanding debt.
University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said.
University of Kansas Health System has an “AA-” rating and stable outlook with Fitch. The rating reflects Kansas City-based system’s flagship hospital’s important presence as the only academic medical center in Kansas and a major provider of many high end and unique services to a large geographic area, Fitch said.
UW Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Madison, Wis.-based system’s strong clinical reputation, high acuity services, and important role as the academic medical center affiliated with the state’s flagship public university, Moody’s said.
VCU Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Richmond, Va.-based system’s status as one of Virginia’s leading academic medical centers and essential role as its largest safety net provider, supporting excellent patient demand at high acuity levels, Moody’s said.
Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.
Some of America’s largest hospital systems saw their financials soar in the first half of 2024. And yet, more than 700 facilities across the country still are at risk of closing.
Why it matters:
It’s a familiar tale of the rich getting richer, as big, mostly for-profit health systems see improved margins while smaller facilities in outlying areas are barely hanging on.
That could worsen access for some of the most vulnerable Americans — and hasten consolidation in an industry that’s been a magnet for M&A.
The big picture:
Health systems with big footprints, including large academic medical centers, have weathered the pandemic and economic headwinds and are seeing margins as good or better than before COVID-19.
Nashville-based industry behemoth HCA Healthcare posted 23% year-over-year profit growth for the quarter, revising its forecast for the rest of the year, projecting it’ll reach as much as $6 billion. It posted a 10% year-over-year increase in revenue.
King of Prussia, Pennsylvania-based Universal Health Services similarly reported a strong quarter, posting nearly 69% growth on its bottom line over the same period last year while Dallas-based Tenet Healthcare reported a 111% jump in its net income over the same quarter last year.
Yes, but:
Smaller nonprofit hospitals, especially in rural areas, that made it through the crisis with the help of government aid are paring services like maternity wards and struggling to stay open.
“There are a lot of hospitals that survived, but their balance sheets are so weakened, their margin for error is basically zero at this point,” said Mike Eaton, senior vice president of strategy at population health company Navvis.
Hospitals that once could manage their expenses and the needs of communities are “going to really struggle to invest in what comes next,” he said.
Between the lines:
The biggest health systems have benefited from less volatility, seeing stabilizing drug prices and more predictable supply chains and labor costs, per a new report from Strata Decision Technology.
“It’s at least something you can manage to,” Steve Wasson, Strata’s chief data and intelligence officer, told Axios.
Revenues already were up thanks to renegotiated contracts health systems struck with payers last year, Wasson said.
There also have been changes on the federal side that boosted Medicare admissions and put some hospitals in line to be reimbursed for billions in underpayments from the 340B drug discount program.
Zoom in:
It’s all translated to operating margins that are up 17% year-to-date compared with the same time period in 2023, according to the latest Kaufman Hall National Hospital Flash Report.
Volumes as measured by hospital discharges per day are up 4% year-to-date.
Expenses per day are also up 6% year to date, including labor (4%), supplies (8%) and drugs (8%), but are far less volatile and thus easier to plan for, said Erik Swanson, senior vice president at Kaufman Hall.
But there’s a growing gulf between the top third of U.S. hospitals, which are seeing outsize growth, and the rest, Swanson said.
Threat level: A new report from the Center for Healthcare Quality and Payment Reform estimated 703 hospitals — or more than one-third of rural hospitals — are at risk of closure, based on Centers for Medicare and Medicaid Services financial information from July. Losses on privately insured patients are the biggest culprit.
“We’re looking at 50% of rural operating in the red. The situation is very challenging,” Michael Topchik, partner at Chartis Center for Rural Health, told Axios.
These smaller hospitals may still be there, but there will continue to be a steady erosion of the kinds of services they offer, such as obstetrics, cancer care and general surgery, he said.
What’s next:
Private equity investment in rural health care is already booming and with it, prospects for service and staffing cuts.
The South generally has the highest concentration of private equity-owned rural hospitals, often with lower patient satisfaction and fewer full-time staff compared with non-acquired hospitals, according to the Private Equity Stakeholder Project.
Congress is ramping up oversight of private equity investments in the sector, though most lawmakers are loath to take steps to actually halt deals.
West Reading, Pa.-based Tower Health has secured more than $142 million through a debt refinancing deal with bondholders, nearly doubling its days of cash on hand to almost 60 days, a spokesperson for the health system confirmed to Becker’s.
The deal buys Tower more time to execute its financial turnaround and meet its objective of returning to profitability this fiscal year.
“This agreement secures substantial liquidity support and provides a longer-term window to advance our continued financial turnaround efforts,” Tower said in a statement shared with Becker’s. “These efforts are already gaining traction and yielding significant positive outcomes.”
As part of its turnaround efforts, Tower has closed two hospitals, laid off workers, and sold or closed multiple urgent care centers in Pennsylvania. It also will transition revenue cycle operations, patient access services, utilization review and physician advisors to Ensemble, effective July 1. The move will see about 675 Tower employees move to Ensemble.
The health system reported a $27.4 million operating loss for the nine months ending March 31, improving on the $122.8 million loss reported during the same period the prior year. Its long-term debt stands at more than $1.2 billion, according to its most recent quarterly report.
The refinancing was backed by the “vast majority” of Tower’s bondholders, a significant endorsement of its financial recovery plan, according to the nonprofit health system. Tower did not disclose a specific bondholder, but said the group represents some of the largest institutional asset managers in the U.S.
“[The refinancing deal] underscores their confidence in our strategy and affirms that we are on a positive trajectory,” according to the health system.
Tower was formed in 2017 after the formerly named Reading Health System acquired five Pennsylvania hospitals from Franklin, Tenn.-based Community Health Systems. The transaction included Reading Hospital in West Reading; Brandywine Hospital in Coatesville; Chestnut Hill Hospital in Philadelphia; Jennersville Hospital in West Grove; Phoenixville Hospital in Phoenixville; and Pottstown Hospital in Pottstown.
Tower recently closedBrandywine Hospital and Jennersville Hospital. Its plan to sell Brandywine Hospital to Philadelphia-based Penn Medicine fell through earlier this year.
The health system now includes more than 1,200 beds across its remaining hospitals as well as St. Christopher’s Hospital for Children in Philadelphia, in partnership with Drexel University, according to its website.
However, the nonprofit provider and health plan warned subsequent quarters may be less profitable as expenses are projected to climb.
Dive Brief:
Nonprofit hospital and health plan giant Kaiser Permanente reported a $7.4 billion net gain for the first quarter ended March 31, compared to an income of $1.2 billion reported in the same period last year.
The Oakland, California-based operator’s earnings were boosted by its completed acquisition of Geisinger Health, which netted Kaiser a one-time operating gain of $4.6 billion.
Kaiser reported a quarterly operating margin of 3.4%, but noted the first quarter tends to be its strongest due to the timing of the open enrollment cycle. Kaiser predicts revenues will remain steady during subsequent quarters but expenses will likely rise.
Dive Insight:
Kaiser operates 40 hospitals, according to its website, and serves nearly 12.6 million health plan members as of the first quarter.
During the quarter, Kaiser subsidiary Risant Health — a nonprofit health network created last year to independently buy and operate other nonprofit health systems — completed its purchase of Geisinger Health. Kaiser received a one-time payment, boosting earnings. Net income for the quarter excluding the Geisinger transaction was $2.7 billion.
Kaiser increased its operating income year over year by more than 300% to total $935 million. Still, the nonprofit provider said that figure fell short of income logged prior to the pandemic.
Continued cost pressures from high utilization, care acuity and rising prices of goods and services drove quarterly expenses up 6% year over year to total $26.5 billion.
Kaiser has conducted at least three rounds of layoffssince the fall. It most recently cut 76 employees at the beginning of this month, a spokesperson confirmed to Healthcare Dive.
The cuts were done to “reduce costs across our organization,” and primarily impacted information technology and marketing roles, the spokesperson said via email.
Kaiser is not on a hiring freeze, the spokesperson noted. The organization has increased headcount by 5% since 2022 and has open positions currently listed online.
The Wall Street Journal also reported this weekend that Kaiser is attempting to sell $3.5 billion of its private investment holdings due to liquidity issues, citing sources familiar. Kaiser may attempt to sell further holdings later in 2024, according to the report.
Kaiser did not respond to requests for comment by press time about the possible sale.
Here are 30 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.
Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.
Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said.
Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.
Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said.
Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said.
Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position and dominant pediatric market position, Fitch said.
Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said.
Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.
El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said.
Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by its strong operating risk assessment, leading market position in its immediate service area and strong financial profile,” Fitch said.
Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center).
JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said.
Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said.
Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.
Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels.
Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.
Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said.
Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said.
Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January.
Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said.
Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said.
St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position and strong financial management, Fitch said.
Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand and its location in an affluent and well insured market, Moody’s said.
University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said.
Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.
Here are 23 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.
Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.
Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said.
Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.
Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said.
Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said.
Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.
El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said.
JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said.
Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said.
Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels.
Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.
Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said.
Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said.
Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January.
Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said.
Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said.
University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said.
Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.
HENRY KOTULA 