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.”
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.
Other senior executives also cashed out as the company faced a $1.6 billion threat that wreaked havoc throughout the health care system.
On February 21, the same day that a ransomware attack began to wreak havoc throughout UnitedHealth Group and the U.S. health care system, five of UnitedHealth’s C-suite executives, including CEO Andrew Witty and the company’s chief legal officer, sold $17.7 million worth of their stock in the company. Witty alone accounted for $5.6 million of those sales.
The company’s stock has not recovered since the ransomware attack and has underperformed the S&P 500 index of major stocks by 8% during that time. In the two weeks following the ransomware attack, the company’s stock slid by 10.4%, wiping out more than $46 billion in market cap and greatly reducing the value of shares held by non-insiders. The slide continued for several weeks. On the day Witty and the other executives sold their shares, the stock price closed at $521.97. By April 12, it had fallen to $439.20.
“He (Witty) sold the shares on the same day that he learned of the ransomware attack,” said Richard Painter, a professor at the University of Minnesota School of Law who is also the vice chair of Citizens for Responsibility and Ethics in Washington. “That’s not good. For the SEC to prove a civil case of insider trading they just have to prove that it’s more probable than not that executives acted on inside information. CEOs have got to be a heck of a lot more careful.
You’re the CEO of a company, you should not be buying or selling the stock right in the middle of a material event like a ransomware attack. You’re asking for trouble. You’re going to end up with an SEC investigation. If that goes badly you could end up with a DOJ investigation.”
How much UnitedHealth’s C-suite executives sold in company stock on February 21, 2024:
Brian Thompson, the CEO of UHG’s insurance arm, sold $1.5 million on the same day. John Rex, then the CFO and now the CFO and president, sold $4.4 million, as did Dirk McMahon, now the former president. Chief Legal Officer Rupert Bondy, who would likely have to have signed off on the sales, sold $750,000.
HEALTH CARE un-covered is the first media outlet to report these disclosures.
The ransomware attack was caused at least in part by negligence on UnitedHealth’s part, Witty admitted at the Finance Committee hearing. He acknowledged that the company had failed to use multi-factor authentication — requiring more than just a password to access information — to secure its data. The cyberattack exposed the personal health information of as much as a third of Americans’ health information.
“This incident and the harm that it caused was, like so many other security breaches, completely preventable and the direct result of corporate negligence,”
Sen. Ron Wyden (D-Ore.) wrote to federal regulators on May 30. “UHG has publicly confirmed that the hackers gained their initial foothold by logging into a remote access server that was not protected with multi-factor authentication (MFA). MFA is an industry-standard cyber defense that protects against hackers who have guessed or stolen a valid username and password for a system.”
UnitedHealth exploited the crisis created by its own negligence to further entrench its position as the largest employer of doctors in the country,acquiring medical practices that were unable to pay their bills due at least in part to the chaos created by the ransomware attack. The American Medical Association is considering legal action against the company for the attack, with a proposal for its House of Delegates conference beginning June 8 stating that “Optum is the largest employer of physicians and has acquired practices when the ransomware disruption made those practices unable to survive without acquisition… Even the practices that survive will have ongoing damages including but not limited to denials related to giving therapy when it was impossible to obtain prior authorization, from using lines of credit and having to pay interest, from having billing departments and others work overtime to submit claims, to losing key employees from inability to make payroll.”
Other well-timed insider stock transactions
In April, Bloomberg reported that in the lead up to the disclosure of an FTC investigation into UnitedHealth’s monopolistic practices, other UnitedHealth insiders, including Chairman Stephen Hemsley, had sold $102 million worth of their shares.
News of that investigation and the stock sales led Sen. Elizabeth Warren (D-Mass.) and other lawmakers to call for an SEC investigation into the trading.
The disclosures revealed here, however, are potentially more incriminating: the executives sold the stock the same day the company became aware of the devastating ransomware attack. When Witty was supposed to be all hands on deck strategizing how to protect health care providers and millions of patients, he spent at least part of his day taking action to preserve his net worth.
EDITOR’S NOTE:
This is not the first time UnitedHealth executives have engaged in questionable or illegal stock transactions. In 2007, former CEO William McGuire agreed to a record $468 million settlement with the SEC after it was learned that for more than a decade he had engaged in a scheme to inflate the value of his holdings in the company and, consequently, his net worth.
An SEC investigation that year found that over a 12-year period, “McGuire repeatedly caused the company to grant undisclosed, in-the-money stock options to himself and other UnitedHealth officers and employees without recording in the company’s books and disclosing to shareholders material amounts of compensation expenses as required by applicable accounting rules.” In other words, he was back-dating his stock options.
As the SEC explained:
[F]rom at least 1994 through 2005, McGuire looked back over a window of time and picked grant dates for UnitedHealth options that coincided with dates of historically low quarterly closing prices for the company’s common stock, resulting in grants of in-the-money options.
According to the complaint, McGuire signed and approved backdated documents falsely indicating that the options had actually been granted on these earlier dates when UnitedHealth’s stock price was at or near these low points.
These inaccurate documents caused the company to understate compensation expenses for stock options, and were routinely provided to the company’s external auditors in connection with their audits and reviews of UnitedHealth’s financial statements.
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.
CFOs and finance department recruiters have faced a workforce problem for years now, labor experts say: a shrinking pool of U.S. accounting professionals needed to close the books every quarter, complete audits, and make sure the company’s financials comply with GAAP and other regulations.
The hits that have chipped away at accounting labor health are myriad and the statistics stark. While the number of practicing accountants and auditors in the U.S. spiked in 2019, across the past decade since 2013 the total declined by about 10% to 1.62 million last year, with roughly 190,000 jobs disappearing from the work rolls, according to the Bureau of Labor Statistics.
Meanwhile, the total number of test takers who passed the CPA Exam fell to 18,847 in 2022 from 19,544 the year earlier, and the lowest level since 2007, according to the latest numbers available from the Association of International Certified Professional Accountants.
Studies and those analyzing the trend point to a variety of likely culprits: the onerous 150 hours of course credit — equivalent to a fifth year of college — students typically need to become a CPA, generally lower starting salaries compared to other areas of finance, and the demanding hours and rising regulations that lead some practicing accountants to look for the exits once they’re in the field. At the same time, the launch of the generative AI tool ChatGPT in late 2022 led to a new wave of questions about the industry’s future.
Tom Hood, executive vice president of business engagement and growth at the AICPA, is in the optimistic camp of those who believe the pipeline decline is poised to turn around, noting that he has seen other cycles when disruptive shocks such as Microsoft’s Excel in the 1980s damped interest and sparked doomsday talk around the possible “end of accounting.”
“We’ve had ebbs and flows, we’ve had these shortages before and every time that’s happened we as a profession have rallied together,” said Hood, a CPA, adding that AI will automate certain tasks in accounting but will not replace accountants. “We’ve moved this needle before and I think we’re already starting to see it move now.”
In 2024 professional associations and lawmakers are working on numerous initiatives as well as legislation to close the cracks that have leaked talent from the field. In the meantime, companies have found ways to get the staff needed to get their finance work done. CFO Dive talked to experts about some notable tactics that are likely to shape the accounting workforce this year.
States, CPAs and the 150-hour credit question
Currently state regulatory bodies that set the rules require those who want to to become a Certified Public Accountant to have 150 credit hours of education in accounting or related subjects to become a licensed CPA. But amid the growing shortage, there has been a controversial push by states to create another pathway to licensure which include cutting the college credit hour requirement back to 120 hours.
For example, this year Minnesota lawmakers are expected to consider new legislation introduced in the state’s Senate and House in 2023 that would allow candidates to earn a CPA certificate with only 120 hours of college credit, along with passing the CPA exam and some additional work experience or professional education. This alternative would be in addition to the current system that requires 150 hours and one year of work experience, plus passing the CPA exam.
Geno Fragnito, director of government relations for the Minnesota Society of CPAs that supports the change, notes that the current national shift to the 150 rule gained steam in the 1980s after Florida made the change amid a surplus of accountants due to many wanting to move to the state. Florida started the ball rolling by increasing the credit hour requirement to 150 hours in 1983, according to a Journal of Accountancy report.
But in recent years, the MNCPA’s members have consistently pinpointed the credit requirement as one of the main contributors to the drop in CPAs.
“I don’t think there was a meeting that either our CEO or I attended where it was not brought up organically. It was never on our agenda to discuss but it always came up,” Fragnito said. Looking ahead, Fragnito said that other states that are seeking to tweak the credit hour formula include South Carolina and Washington state.
A “volatile year” for CPA exam takers
Two exam-related changes are impacting accounting candidates this year in very different ways. “It’s an exciting time but I think 2024 will be a very volatile year,” Mike Decker, vice president of the CPA Examination & Pipeline Extension for AICPA, said in a recent interview. One of the changes is student-friendly: it’s designed to ease deadline pressures and address pandemic-related delays that might have affected some test takers. In a move announced last spring, the National Association of State Boards of Accountancy extended the window that a candidate has to complete the exam once they pass the first section from 18 months to 30 months. The move grew out of the AICPA’s effort to address the accounting shortage, known as its pipeline acceleration plan.
Meanwhile, this month marked the launch of a revamped CPA Exam called the CPA Evolution. The test has both new content and structure and a greater focus on technology in an effort to combat research that found that accounting firms were hiring fewer accountants in favor of non-accountants with tech backgrounds, according to a Nov. 7 report by Michael Potenza of Becker. “It’s not that CPA Evolution is meant to be harder than the previous version of the exam, it’s simply meant to better prepare you for the skills and competencies needed in modern accounting,” Potenza, a CPA, wrote.
Raises and remote work
Tactics that CFOs themselves are using to meet their staff needs include sweetened offers and going offshore or considering remote workers to gain talent. With most small and medium-size CPA firms unable to find enough qualified U.S. accountants, this summer a study found that over half of firms planned to hike starting salaries by 14%, CFO Dive previously reported. Lisa Simpson, vice president of firm services at AICPA, is hearing about similar approaches taken by firm leaders she’s spoken with. In the past few years, she said, firm leaders indicated they were providing several high percentage salary increases for new hires and existing employees. Last year firms gave raises at rates above inflation as well as continuing bonuses, and business leaders said they expect to continue raises into 2024.
Meanwhile, many firms are outsourcing U.S. accounting work to professionals in India, the Philippines, and Eastern European countries like Poland, according to Matt Wood, head of global FAO Services at Austin, Texas-based Personiv, a global outsourcing provider which serves those needs. While outsourcing to other companies was previously the domain of larger firms, the pandemic has led to more companies being comfortable with remote accounting staff, he said.
The shift to hiring accounting staff outside the U.S. “has been happening for a while now, but it really accelerated in 2020. The accounting talent pool was already shrinking, and businesses were feeling the impact of that pre-pandemic. Then, all of these other pieces fell into place; teams were working remotely and protecting cashflow took priority,” Wood said in an emailed response to questions from CFO Dive.
The shortage of accountants is one of the main concerns keeping KPMG’s Greg Engel up at night. The firm is teaming up with universities to expand the talent pool.
KPMG’s Greg Engel likens the accounting profession to the turtle in the proverbial race with the hare — a turtle that’s seeking to pull ahead even as it competes with flashier industry sectors for workers.
The shortage of accounting talent is one of the main concerns keeping Engel — vice chair of tax in the U.S. for the Big Four accounting firm — up at night as he assesses the new year’s challenges, even as KPMG has undertaken numerous initiatives to ease the talent crunch.
At the same time, he sees a potential silver lining for his sector in the recent surge of layoffs in the formerly sizzling tech sector that has won over some college graduates who might have otherwise gone into accounting.
“A lot of people went to the technology sector because it was exciting. But now that Meta and Twitter and all these other companies are laying off people, kids going into college might go, ‘wait a minute, maybe KPMG sounds a little better than Twitter,’” Engel said in an interview. “Accounting is that boring, stable profession that doesn’t do as well in hugely expansive economies but does great when the economy’s on the downslide.”
Making accounting’s case
Historically, the Big Four accounting and consulting firms have mounted robust programs designed to recruit and train accounting students right out of colleges and major universities.
KPMG, along with PwC, Ernst & Young and Deloitte, hire thousands of graduates and students each year out of colleges, often training them through internships which lead to full-time jobs. Many of the certified public accountants go on to be controllers, tax directors and even CFOs. The entry level accounting salary range at such programs in the tax area can be roughly in the $70,000 to $80,000 range, depending on the market, according to some industry estimates.
“The hallmark of the Big Four was to train people really, really well,” Engel said. The longer employees stay at a firm, the better their prospects after they leave, Engel said.
That means an employee who leaves after a couple years could probably join a company’s accounting department at a lower level, he said. But if the employee leaves after rising to the level of senior manager, he or she could join the same company as controller — and those who leave as a partner might join as a CFO, Engel said.
CFO machine showing signs of wear
But the machine generating CPAs and CFOs has shown signs of wear in recent years. For one thing, KPMG has not been immune to the Great Resignation. It was hit by the surge in turnover that weakened the middle ladder rungs of its workforce. “There’s a kind of battle in the middle,” Engel said. The company responded in part by hiring experienced accountants from companies like Apple and Home Depot, he said.
At the same time, accounting has attracted fewer students in recent years. The total number of U.S. students completing a Bachelor’s degree in accounting fell about 8% in the 2019-2020 school year compared with the 2011-2012 period, shrinking to 52,481 graduates from 57,482, according to a 2021 report from the American Institute of Certified Public Accountants.
Priming the pipeline
Firms and accounting organizations have been taking deliberative steps in recent years to boost their case with talent and solve the talent shortage. For instance, the AICPA and the Department of Labor announced in November that they had teamed up to cultivate candidates and expand the pool of professionals, CFO Dive reported.
If students are not deterred by the accounting profession’s long hours and subdued reputation, they may feel reluctant to put in the credit hours required before taking the exam to become a Certified Public Accountant. That typically means a student will need more study beyond that of a four-year degree.
In an effort to make the extra course work pay off, KPMG worked with a number of universities to develop a Master in Accounting and Data Analytics Program that gives students the data analysis skills that are increasingly important in the field.
Recently, an additional seven universities were added to the program and KPMG has pledged to provide more than $7 million in scholarships. The schools added to the program included some historically Black Colleges and Universities such as Howard University School of Business and North Carolina Agricultural and Technical State University. Other universities that offer the program include Villanova University and The Ohio State University.
Separately, KPMG has teamed up with Engel’s alma mater, the University of Northern Iowa in Cedar Falls, Iowa, to help strengthen the accounting program and opportunities for students attending Des Moines Area Community College.
The company will also aim to provide internships to the students who often attend school at night or part-time, which can make it difficult to obtain the credit hours needed to become a CPA.
“We’re going to start adding people to the profession with two-year associates degrees,” Engel said, noting that similar programs are cropping up elsewhere. “We’ll give them a pathway to add the extra courses and programs they need.”
The nation’s largest payers have filed their third-quarter earnings reports, revealing which grew their profits the most year over year.
1. UnitedHealth Group: $5.3 billion The company’s third quarter earnings increased over 28 percent year over year. Total net earnings in 2022 are $15.7 billion, an increase of 16.2 percent from $13.5 billion in 2021.
2. Cigna: $2.8 billion The company’s third quarter earnings increased over 70 percent year over year. Total net earnings in 2022 are $5.5 billion, an increase of over 29 percent from $4.2 billion in 2021.
3. Elevance Health: $1.6 billion The company’s third quarter earnings increased over 7 percent year over year. Total net earnings in 2022 are $5.06 billion, an increase of nearly 2 percent from $5 billion in 2021.
4. Humana: $1.2 billion The company’s third quarter earnings decreased over 21 percent year over year. Total net earnings in 2022 are $2.8 billion, a decrease of over 4 percent from $2.9 billion in 2021.
5. Centene: $738 million The company’s third quarter earnings increased over 26 percent year over year. Total net earnings in 2022 are $1.4 billion, an increase of over 89 percent from $748 million in 2021.
6. CVS Health: $3.4 billion losses The company’s third quarter losses are attributable to an opioid legal settlement. Total net earnings in 2022 are $1.9 billion, a decrease of over 71 percent from $6.6 billion in 2021.
HENRY KOTULA 