Category Archives: Financial Ratios

48 health systems with strong finances

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Here are 48 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 position 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.

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.

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.

Days Cash on Hand Does Not Tell the Full Liquidity Story

Posted on by • Posted in Cash to Debt Ratio, Credit Quality, Credit Rating Committee, Credit Rating Process, Credit Ratings, Days Cash on Hand, Financial Ratios, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Health System, Hospital, Hospital Industry, Liquidity, Strategic Resource Allocation • Leave a comment

https://www.kaufmanhall.com/insights/blog/days-cash-hand-does-not-tell-full-liquidity-story

Days cash on hand is one of the most important metrics in hospital credit analysis. The ratio calculates an organization’s unrestricted cash and investments relative to daily operating expenses.

Here’s a computation commonly used to calculate days cash on hand:

[Unrestricted cash and investments*365 days] / [Annual operating expenses – non-cash expenses]

Math aside, let’s unpack what days cash on hand really tells us. Days cash on hand gives an indication of a hospital’s flexibility and financial health. Essentially, it tells us how long a hospital could continue to operate if cash flow were to stop. From a ratings perspective, the higher the days cash, the better, to create a cushion or rainy-day fund for unexpected events.

While the sheer abatement of cash flow feels like a doomsday scenario, we don’t have to look far back to see examples. The shutdown in the early days of Covid and the recent Change Healthcare cyberattack are examples of events that can materially impact cash flow. While these may be considered extreme, there are plenty of more common events that can disrupt cash flow, including a delay in supplemental funding, an IT installation, a change in Medicare fiscal intermediary, an escalation in construction costs, or the bankruptcy of a payer.

Size and diversified business enterprises can impact days cash on hand. For example, small hospitals with outsized cash positions relative to operations often report a dizzying level of days cash on hand. Health systems with wholly owned health plans often show lower days cash when compared to like-sized peers without health plans. Analysts will also review a hospital’s cash-to-debt ratio, which is an indication of leverage and compares absolute unrestricted cash to long-term obligations. Cash-to-debt creates a more comparable ratio across the portfolio.

In the years leading up to the pandemic, the days cash on hand median increased steadily as the industry went through a period of stable financial performance and steady equity market returns. Hospitals took advantage of an attractive debt market to fund large capital projects or reimburse for prior capital spending. The median crested over 200 days. As discussed during our March 20, 2024, rating agency webinar, days cash median for 2023 is expected to decline or remain flat at best, not because of an increase in capital spending or deficit operations, but because daily expenses (mainly driven by labor) will grow faster than absolute cash. Expenses will outrun the bear, so to speak.

Days cash on hand will remain a pillar liquidity ratio for the industry, but equally important is the concept of liquidity. Days cash on hand doesn’t tell the whole story regarding liquidity. A hospital may compute that it has, say, 200 days cash on hand, but that calculation is based on total unrestricted cash and investments, which usually includes long-term investment pools. A sizable portion of that 200 days may not be accessible on a daily basis.

Recall that during the 2008 liquidity crisis, many hospitals had large portions of their unrestricted investment pools tied up in illiquid investments. When you needed it the most, you couldn’t get it. 2008 was a watershed moment that starkly showed the difference between wealth and liquidity and the growing importance of the latter. Days cash on hand didn’t necessarily mean “on hand.” Many hospitals scrambled for liquidity, which came in the form of expensive bank lines because liquidating equity investments in a down market would come at a huge cost.

Nearly overnight, daily liquidity became a fundamental part of credit analysis.

While the events were different, Covid and Change Healthcare followed the same fact pattern: crisis occurred, cash flow abated, and hospitals scrambled for liquidity, drawing on lines of credit to fund operating needs. Within a quick minute healthcare went “back to the future,” and undoubtedly, there will be another liquidity crisis ahead.

Rating reports now include information on investment allocation and diversification within those investments, and report new ratios such as monthly liquidity to total cash and investments. A hospital with below average days cash on hand or cash-to-debt may receive more attention in the rating report regarding immediately accessible funds.

Irrespective of a high or low cash position or rating category, providing rating analysts with a schedule highlighting where management would turn to when liquidity is needed would be well received. For example, do you draw on lines of credit, hit depository accounts, pause capital, extend payables, or liquidate investments, and in what order? Some health systems are taking this a step further with an in-depth sophisticated analysis to quantify their operating risks and size their liquidity needs accordingly, which we call Strategic Resource Allocation. This analysis would boost an analyst’s confidence in management’s preparedness for the next crisis with the segmenting of true cash “on hand.” It would also help ensure that, when the next crisis arrives, management will know where to turn to maintain liquidity and meet daily cash needs.

30 health systems with strong finances

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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. 

23 health systems with strong finances

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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. 

9 recent health system downgrades and outlook revisions

Posted on by • Posted in Balance Sheet, Credit Downgrade, Credit Quality, Credit Ratings, Financial Ratios, Financial Reserves, Financial Stewardship, Financial Viability, Health System, Hospital, Hospital Industry, Liquidity, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
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Here is a summary of recent credit downgrades and outlook revisions for hospitals and health systems.

The downgrades and downward revisions reflect continued operating challenges many nonprofit systems are facing, with multiyear recovery processes expected.

Downgrades:

Yale New Haven (Conn.) Health: Operating weakness and elevated debt contributed to the downgrade of bonds held by Yale New Haven (Conn.) Health, Moody’s said May 5. The bond rating slipped from “Aa3” to “A1,” and the outlook was revised to stable from negative.

The system saw a second downgrade as its default rating and that on a series of bonds were revised one notch to “A+” from “AA-” amid continued operating woes, Fitch said June 28.

Not only have there been three straight years of such challenges, but the operating environment continues to cast a pall into the second quarter of the current fiscal year, Fitch said.

UC Health (Cincinnati): The system was downgraded on a series of bonds, Moody’s said May 10.

The move, which involved a lowering from a “Baa2” to “Baa3” grade, refers to such bonds with an overall value of $580 million.

In February, UC Health suffered a similar downgrade from “A” to “BBB+” on its overall rating and on some bonds because of what S&P Global termed “significantly escalating losses.”

UNC Southeastern (Lumberton, N.C.): The system, which is now part of the Chapel Hill, N.C.-based UNC Health network, saw its ratings on a series of bonds downgraded to “BB” amid operating losses and sustained weakness in its balance sheet, S&P Global said June 23.

While UNC Southeastern reported an operating loss of $74.8 million in fiscal 2022, such losses have continued into fiscal 2023 with a $15 million loss as of March 31, S&P Global said. The system had earlier been placed on CreditWatch but that was removed with this downgrade.

Butler (Pa.) Health: The system, now merged with Greensburg, Pa.-based Excela Health to form Independence Health System, saw its credit rating downgraded significantly, falling from “A” to “BBB.”

The move reflects continued operating challenges and low patient volumes, Fitch said June 26.

Such operating challenges, including low days of cash on hand, could result in potential default of debt covenants, Fitch warned.

Outlook revisions:

Redeemer Health (Meadowbrook, Pa.): The system had its outlook revised to negative amid “persistent operating losses,” Fitch Ratings said June 14. The health system, anchored by a 260-bed acute care hospital, reported a $37 million operating loss in the nine months ending March 31, Fitch said.

Thomas Jefferson University (Philadelphia): The June 9 downward revision of its outlook, which includes both the health system and the university’s academic sector, was due to sustained operating weakness, S&P Global said.

IU Health (Indianapolis): While it saw ratings affirmed at “AA,” the 16-hospital system had its outlook downgraded amid persistent inflationary pressures and large capital expense, Fitch said May 31.

UofL Health (Louisville, Ky.): Slumping operating income and low days of cash on hand (42.8 as of March 31) contributed to S&P Global revising its outlook for the six-hospital system to negative May 24.

The Financial Structure of Not-for-Profit Hospitals and Health Systems

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Not-for-profit hospitals and health systems rely on
three interdependent functions to contribute to the
financial resilience of the organization: namely, the
ability to withstand adverse changes to these core
functions and continue to provide services to the
community (Figure above).


Âź The Operating Function:

The Operating Function
manages the portfolio of clinical services and
strategic initiatives that define the charitable mission
of the organization. Clinical services generate
patient revenue, and if that revenue creates a
positive margin (i.e., exceeds expenses), that excess
is invested back into the health system. Operating
margins are, on average, very low in not-for-profit
healthcare. For example, for the not-for-profit
hospitals and health systems rated by Moody’s
Investors Service, median operating margins from
2017–2021 ranged between 2.1% and 2.9%. These
rated organizations represent only a few hundred
of the thousands of hospitals and health systems
in the country and are among the most financially
healthy. A 2018 study of a wider group of more than
2,800 hospitals found an average clinical operating
margin of -2.7%.


Âź The Finance Function:

Because the positive margins
generated by the Operating Function are rarely
enough to support the intensive capital needs of
maintaining and improving acute-care facilities, care
delivery models, and technology, not-for-profit health
systems rely on the Finance Function for internal
and external capital formation. The Finance Function
builds cash reserves and secures external financing

(e.g., bond proceeds, bank lines of credit) to support
the capital spending needs of the organization. The
cash reserves maintained by the Finance Function
also help the organization meet daily expenses at
times when expenses exceed revenues.


Âź The Investment Function:

Not-for-profit hospitals
and health systems will also endeavor to invest
some of their cash reserves to generate returns
that, first, act as an additional hedge against
potential risks that could disrupt operations or cash
flow, and second, pursue independent returns.
Any independent returns generated serve as an
important supplement to revenues generated
through the Operating Function.

The three functions described above are common to
all not-for-profit organizations. The main differences
are mostly within the Operating Function. In higher
education, for example, tuition revenue takes the
place of clinical revenue. While higher education also
maintains enterprise risk, the Operating Function
for colleges and universities is less vulnerable to
volume swings as enrollment is typically steady and
predictable. Likewise, higher education is less labor
intensive than healthcare.

Financial reserves include all liquid cash resources
and unrestricted investments held in the Finance and
Investment Functions. These reserves are equivalent
to the emergency funds individuals are encouraged
to maintain to help them meet living expenses for
six to twelve months in case of a job loss or other
disruption to income.


Absolute reserve levels are important, as discussed
above, but they must also be viewed relative to
a hospital’s daily operating expenses. A common

metric used to describe these reserves is Days Cash
on Hand. If an organization has 250 Days Cash on
Hand, that means that it would be able to meet its
operating expenses for 250 days if revenue was
suddenly shut off. The size of Days Cash on Hand will
be proportionate to the size of the hospital and health
system. Some of the largest not-for-profit health
systems have annual operating expenses approaching
$30 billion annually: meeting those expenses for 250
days would require Days Cash on Hand of more than
$20 billion.


The shutdown that occurred in the early days of the
pandemic (March through May 2020) is an example
of a time when cash flow nearly shut off for most
hospitals (except for emergency care). Reserves,
measured in absolute and relative terms such as
Days Cash on Hand, allowed hospitals that were
nearly empty to maintain staffing and operations
throughout the period. Other hospitals that were
inundated with patients during the initial surge
were able to fund increased staffing and personal
protective equipment costs through their reserves.
Other examples of how reserves provide a buffer

against unexpected events include natural disasters
such as hurricanes, tornadoes, deep freezes, and
wildfires, which can require the temporary shutdown
of operations; cyberattacks, which can halt a hospital’s
ability to provide services; a defunct payer that is unable
to reimburse hospitals for care already provided; or an
escalation in labor costs as experienced by many during 2022.

Without the reserves to pay for contract labor or
premium pay, many hospitals would have undoubtedly
had to close or limit services to their community.

KEY TAKEAWAYS

Âź Financial reserves are created through the
interdependent relationship of operating, finance,
and investment functions in not-for-profit health
systems.


Âź These reserves build financial resilience: the ability
to withstand adverse changes to core functions and
continue to provide services to the community.


Âź Financial reserves play an important role in
supplementing any shortfalls in revenue or capital
formation in one or more of these three functions.

Âź Financial reserves are equivalent to individual
emergency funds—both are intended to cover
expenses if income or revenue flows are
significantly disrupted.


Âź A common metric used to describe financial
reserves is Days Cash on Hand: an organization’s
combined liquid, unrestricted cash resources and
investments, measured by how many days these
reserves could cover operating expenses if cash
flows were suddenly shut off.

Financial reserves, measured in absolute
and relative terms such as Days Cash
on Hand, allowed hospitals that were
nearly empty during the early days of
the pandemic to maintain staffing and
operations throughout the period. Other
hospitals that were inundated with patients
during the initial surge were able to fund
increased staffing and personal protective
equipment costs through their reserves.

A Comparison: Financial Reserves and Higher Education Not-for-Profits

Not-for-profit hospitals and health systems are
not alone in their reliance on financial reserves;
most not-for-profit organizations carry reserves
that enable them to maintain operations and
make needed investments even in times of weaker
operating performance. Higher education is
probably most comparable to healthcare, with
significant overlaps between the two sectors.
Moody’s Investors Service, one of the three major
rating agencies, notes that 16% of its rated higher
education institutions have affiliated academic
medical centers (AMCs), and revenue from patient
care at these AMCs contributes to 28% of the
overall revenues for the higher education sector.


The magnitude of Days Cash on Hand levels
varies by industry; financial reserves maintained
by private not-for-profit higher education

institutions, for example, are significantly greater
than those maintained by not-for-profit hospitals
and health systems. For comprehensive private
universities across all rating categories, Moody’s
reports median Days Cash on Hand in 2021 of 498
days for assets that could be liquidated within a
year. This compares with a median 265 Days Cash
on Hand in 2021 across all freestanding hospitals,
single-state, and multi-state healthcare systems
rated by Moody’s.


Financial reserves are a critical measure of
financial health across both healthcare and higher
education. They help ensure that not-for-profit
colleges, universities, hospitals, and health systems
can continue to fulfill their vital societal functions
when operations are disrupted, or when they are
experiencing a period of sustained financial distress.

14 health systems with strong finances

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

1. Advocate Aurora Health has an “AA” rating and stable outlook with Fitch. The health system, dually headquartered in Milwaukee and Downers Grove, Ill., has a strong financial profile and a leading market position over a broad service area in Illinois and Wisconsin, Fitch said. The health system’s fundamental operating platform is strong, the credit rating agency said. 

2. AnMed Health has an “AA-” rating and stable outlook with Fitch. The Anderson, S.C.-based system has a leading market share in most service lines, strong operating performance and very solid EBITDA margins, Fitch said. 

3. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base. 

4. Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based health system has a broad geographic footprint as one of the five largest Catholic health systems in the U.S., a good payer mix and a leading or near leading market share in eight of its eleven markets in the U.S., Fitch said. 

5. Lincoln, Neb.-based Bryan Health has an “AA-” rating and stable outlook with Fitch. The health system has a leading and growing market position, very strong cash flow and a strong financial position, Fitch said. The credit rating agency said Bryan Health has been resilient through the COVID-19 pandemic and is well-positioned to accommodate additional strategic investments. 

6. Franciscan Alliance has an “AA” rating and stable outlook with Fitch. The Mishawaka, Ind.-based health system has a very strong cash position and maintains leading market shares in seven of its nine defined primary service areas, Fitch said. The health system benefits from a good payer mix, the credit rating agency said. 

7. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics and a leading market position and expanding operating platform in its service area, Fitch said. The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic. 

8. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based health system has shown consistent year-over-year increases in market share and has a solid liquidity position, Fitch said. 

9. 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. 

10. Salt Lake City-based Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The health system has exceptional credit quality, which will continue to benefit from its leading market position in Utah, Moody’s said. The credit rating agency said the health system’s merger with Broomfield, Colo.-based SCL Health will give Intermountain greater geographic reach.

11. Omaha-based Nebraska Medicine has an “AA-” rating and stable outlook with Fitch. The health system has a strong market position and is the only public academic provider in Nebraska with high acuity services, Fitch said. The health system continues to generate positive operating cash flow levels, and it has modest flexibility to absorb additional debt, according to the credit rating agency. 

12. Fort Wayne, Ind.-based Parkview Health has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading market position with expansive tertiary and quaternary clinical services in northeastern Indiana and northwestern Ohio, Moody’s said. The credit rating agency said the stable outlook reflects management’s ability to generate strong operating performance during the pandement and with less favorable reimbursement rates. 

13. UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The Des Moines, Iowa-based health system has strong leverage metrics and cash position, Fitch said. The credit rating agency expects the health system’s balance sheet and debt service coverage metrics to remain robust. 

14. Yale New Haven (Conn.) Health has an “AA-” rating and stable outlook with Fitch. The health system’s turnaround efforts, brand recognition and market presence will help it return to strong operating results, Fitch said. 

10 health systems with strong finances

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

1. AnMed Health has an “AA-” rating and stable outlook with Fitch. The Anderson, S.C.-based system has a leading market share in most service lines, strong operating performance and very solid EBITDA margins, Fitch said. 

2. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base. 

3. Franciscan Alliance has an “AA” rating and stable outlook with Fitch. The Mishawaka, Ind.-based health system has a very strong cash position and maintains leading market shares in seven of its nine defined primary service areas, Fitch said. The health system benefits from a good payer mix, the credit rating agency said. 

4. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics and a leading market position and expanding operating platform in its service area, Fitch said. The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic. 

5. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based health system has shown consistent year-over-year increases in market share and has a solid liquidity position, Fitch said. 

6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has a consistently strong operating cash flow margin and ample balance sheet resources, Moody’s said. Inova’s financial excellence will remain undergirded by its favorable regulatory and economic environment, the credit rating agency said. 

7. Salt Lake City-based Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The health system has exceptional credit quality, which will continue to benefit from its leading market position in Utah, Moody’s said. The credit rating agency said the health system’s merger with Broomfield, Colo.-based SCL Health will give Intermountain greater geographic reach. 

8. Fort Wayne, Ind.-based Parkview Health has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading market position with expansive tertiary and quaternary clinical services in northeastern Indiana and northwestern Ohio, Moody’s said. The credit rating agency said the stable outlook reflects management’s ability to generate strong operating performance during the pandement and with less favorable reimbursement rates. 

9. UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The Des Moines, Iowa-based health system has strong leverage metrics and cash position, Fitch said. The credit rating agency expects the health system’s balance sheet and debt service coverage metrics to remain robust. 

10. Yale New Haven (Conn.) Health has an “AA-” rating and stable outlook with Fitch. The health system’s turnaround efforts, brand recognition and market presence will help it return to strong operating

19 health systems with strong finances

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Here are 19 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. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base. 

3. Clearwater, Fla.-based BayCare has an “AA” rating and stable outlook with Fitch. The 14-hospital system has excellent liquidity and operating metrics, which are supported by its leading market position in a four-county area, Fitch said. The credit rating agency expects strong revenue growth and cost management to sustain BayCare’s operating performance.

4. CentraCare has an “AA-” rating and stable outlook with Fitch. The St. Cloud, Minn.-based system has a leading market position and solid operating margins, Fitch said. The credit rating agency said it expects CentraCare’s operating platform to remain strong. 

5. 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. 

6. Franciscan Alliance has an “AA” rating and stable outlook with Fitch. The Mishawaka, Ind.-based health system has a very strong cash position and maintains leading market shares in seven of its nine defined primary service areas, Fitch said. The health system benefits from a good payer mix, the credit rating agency said. 

7. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics and a leading market position and expanding operating platform in its service area, Fitch said The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic. 

8. 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. 

9. Vineland, N.J.-based Inspira Health Network has an “AA-” rating and stable outlook with Fitch. The health system has strong operating performance, a leading market position in a stable service area and a growing residency program, Fitch said. The credit rating agency expects the system’s growing outpatient footprint and an increase in patient volumes to support its operating stability. 

10. Oakland, Calif.-based Kaiser Permanente has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile, and the system’s operating platform is “arguably the most emulated model” for nonprofit healthcare delivery in the U.S., Fitch said. By revenue base, Kaiser is the largest nonprofit health system in the U.S., and it is the most fully integrated healthcare delivery system in the country, according to the credit rating agency. 

11. 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. 

12. 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. 

13. 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.

14. Traverse City, Mich.-based Munson Healthcare has an “AA” rating and stable outlook with Fitch. The health system has a strong market position, a good payer mix and robust cash-to-adjusted debt levels, Fitch said. The credit rating agency expects the system to weather an expected period of weakened operating cash flow margins. 

15. 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. Presbyterian Healthcare Services is the largest health system in New Mexico, and it has strong revenue growth and a healthy balance sheet, Moody’s said. The credit rating agency said it expects the health system’s balance sheet and debt metrics to remain strong. 

16. 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. 

17. 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. 

18. 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. 

19. 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.

Nonprofit hospitals face mounting financial pressures: 4 things to know

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Not-for-profit hospitals and healthcare systems continue to face significant operating challenges as they attempt to keep revenues on pace with escalating operating expenses fueled by inflation, according to a June 27 report from S&P.

Highlights from the report:

  • The first quarter of 2022 marked the toughest performance quarter on record for U.S. not-for-profit hospitals and health systems, highlighted by widespread inflationary pressures across the sector. 
  • High labor expenses are likely to cause sustained operating hurdles, and demands on cash flow combined with weaker investment market returns could reduce financial flexibility through the remainder of 2022 and into 2023.
  • S&P notes that higher interest costs are likely to make borrowing options more expensive. Furthermore, the re-introduction of sequestration and the likely end of the public health emergency later this year will also have to be absorbed into cash flow.
  • The regulatory environment is becoming tougher and eliminating mergers and acquisitions as an option for many providers. Given recent denials by the Federal Trade Commission and other regulatory agencies, this option may be increasingly difficult to deploy. If these denials affect organizations that are already struggling operationally, options could become increasingly limited for certain providers.

Read the full report here.