Category Archives: Financial Reserves

68 health systems with strong finances

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Here are 68 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings, Moody’s Investors Service and S&P Global in 2023. 

AdventHealth has an “AA” rating and stable outlook with Fitch. The rating reflects the  Altamonte Springs, Fla.-based system’s strong financial profile, characterized by still-adequate liquidity and moderate leverage, typically strong and highly predictable profitability, Fitch said. 

Advocate Aurora Health has an “AA” rating and stable outlook with Fitch. The Downers Grove, Ill.- and Milwaukee-based system’s rating reflects a very strong financial profile in the context of an already sound market position and geographic reach that was enhanced after merging with Charlotte, N.C.-based Atrium Health, Fitch said.    

AnMed Health has an “AA-” rating and stable outlook with Fitch. The Anderson, S.C.-based system has maintained strong performance through the COVID-19 pandemic and current labor market pressures, Fitch said.  

AtlantiCare has an “AA-” rating and stable outlook with Fitch. The Atlantic City, N.J.-based system has a strong balance sheet with solid liquidity position and low debt burden, Fitch said. 

Atrium Health has an “AA-” rating and stable outlook with S&P Global. The Charlotte, N.C.-based system’s rating reflects a robust financial profile, growing geographic diversity and expectations that management will continue to deploy capital with discipline. 

Banner Health has an “AA-” and stable outlook with Fitch. The Phoenix-based system’s rating highlights the strength of its core hospital delivery system and growth of its insurance division, Fitch said. 

BayCare Health System has an “AA” rating and stable outlook with Fitch. The Tampa, Fla.-based system’s rating reflects its excellent financial profile supported by its leading market position in a four-county area and the ability to sustain a solid operating outlook in the face of inflationary sector headwinds, Fitch said. 

Bayhealth has an “AA” rating and stable outlook with Fitch. The rating reflects the strength of the Dover, Del.-based system’s market positions and the stability of its financial profile, Fitch said.  

Beacon Health System has an “AA-” rating and stable outlook with Fitch. The rating reflects the strength of the South Bend, Ind.-based system’s balance sheet, the rating agency said.   

Berkshire Health has an “AA-” rating and stable outlook with Fitch. The Pittsfield, Mass.-based system has a strong financial profile, solid liquidity and modest leverage, according to Fitch. 

Bryan Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Lincoln, Neb., system’s leading and growing market position as a regional referral center with strong expense flexibility and cash flow, Fitch said.  

Cape Cod Healthcare has an “AA-” and stable outlook with Fitch. The Hyannis, Mass.-based system’s rating reflects a dominant market position in its service area and historically solid operating results, the rating agency said. 

Carle Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Urbana, Ill.-based system’s distinctly leading market position over a broad service area, Fitch said. 

CaroMont Health has an “AA-” rating and stable outlook with S&P Global. The Gastonia, N.C.-based system has a healthy financial profile and robust market share in a competitive region.  

CentraCare has an “AA-” rating and stable outlook with Fitch. The St. Cloud, Minn.-based system has a leading market position, and its management’s focus on addressing workforce pressures, patient access and capacity constraints will improve operating margins over the medium term, Fitch said. 

Children’s Health System of Texas has an “AA” and stable outlook with Fitch. The Dallas-based system’s rating reflects its solid operating performance in 2022, resulting from inpatient, outpatient and surgical volume growth, as well as one-time support from pandemic-era stimulus funding, Fitch said. 

Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The Minneapolis-based system’s broad reach within the region continues to support long-term sustainability as a market leader and preferred provider for children’s health care, Fitch said. 

Concord (N.H.) Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the strength of Concord’s leverage and liquidity assessment and Fitch’s assessment that two recently acquired hospitals will be strategically and financially accretive. 

Cone Health has an “AA” rating and stable outlook with Fitch. The rating reflects the expectation that the Greensboro, N.C.-based system will gradually return to stronger results in the medium term, the rating agency said.

Cottage Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Santa Barbara, Calif.-based system’s leading market position and broad reach in a service area that exhibits modest population growth but consistently high demand for acute care services, Fitch said. 

Deaconess Health System has an “AA” rating and stable outlook with Fitch. The Evansville, Ind.-based system demonstrated operating cost flexibility through the pandemic and recent labor and inflationary pressure, Fitch said. 

Duke University Health System has an “AA-” rating and stable outlook with Fitch. Fitch projects the Durham, N.C.-based system will benefit from the integration of the former Private Diagnostic Clinic and from North Carolina’s recently enacted Medicaid expansion and Healthcare Access and Stabilization Program. 

El Camino Health has an “AA-” rating and stable outlook with Fitch. The Mountain View, Calif.-based system has a history of generating double-digit operating EBITDA margins, driven by a solid market position that features strong demographics and a very healthy payer mix, Fitch said. 

Franciscan Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Mishawaka, Ind.-based system’s strong and stable balance sheet, favorable payer mix, and leading or near leading market share in its service areas, Fitch said. 

Froedtert Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Milwaukee-based system’s maintenance of a strong, albeit compressed, operating performance and a robust liquidity position, Fitch said. 

Geisinger has an “AA-” credit rating and stable outlook with S&P. The Danville, Pa.-based system enjoys strong integration and value-based care experience, the ratings agency said.

Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based system’s rating is supported by its strong presence in its large and demographically favorable market, Fitch said.  

Harris Health System has an “AA” rating and stable outlook with Fitch. The Houston-based system has a “very strong” revenue defensibility, primarily based on the district’s significant taxing margin that provides support for operations and debt service, 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 a leading market position in its immediate area and very strong financial profile, Fitch said.  

Intermountain Health has an “Aa1” rating and stable outlook with Moody’s. The Salt Lake City-based system’s rating is reflected by its distinctly leading market position in Utah and strong absolute and relative cash levels, Moody’s said.   

Inspira Health has an “AA-” rating and stable outlook with Fitch. The Mullica Hill, N.J.-based system’s rating reflects its leading market position in a stable service area and a large medical staff supported by a growing residency program, Fitch said. 

IU Health has an “AA” rating and stable outlook with Fitch. The Indianapolis-based system has a long track record of strong operating margins and an overall credit profile that is supported by a strong balance sheet, the rating agency said. 

Lucile Packard Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the Palo Alto, Calif.-based hospital’s role as a nationally known, leading children’s hospital, Fitch said. It also benefits from resilient clinical volumes and a solid market position, as well as its relationship with Stanford University and Stanford Health Care. 

Kaiser Permanente has an “AA-” and stable outlook with Fitch. The Oakland, Calif.-based system’s rating is driven by a strong financial profile, which is maintained despite a challenging operating environment in fiscal year 2022. 

Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The Rochester, Minn.-based system’s credit profile characterized by its excellent reputations for clinical services, research and education, Moody’s said.

McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The Grand Blanc, Mich.-based system has a leading market position over a broad service area covering much of Michigan and a track-record of profitability despite sector-wide market challenges in recent years, Fitch said.

McLeod Regional Medical Center has an “AA-” rating and stable outlook with Fitch. The rating reflects the Florence, S.C.-based system’s very strong financial profile assessment, historically strong operating EBITDA margins and its solid market position, Fitch said.   

MemorialCare has an “AA-” rating and stable outlook with Fitch. The rating reflects the Fountain Valley, Calif.-based system’s strong financial profile and excellent leverage metrics despite its weaker operating performance, Fitch said. 

Memorial Sloan-Kettering Cancer Center has an “AA” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the New York City-based system’s national and international reputation as a premier cancer hospital will continue to support growth in its leading and increasing market share for its specialty services. 

Midland (Texas) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Midland’s exceptional market position and limited competition for acute-care services and growing outpatient services, Fitch said.  

Monument Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Rapid City, S.D.-based system’s dominant inpatient market share and excellent market position across its geographically broad service area, Fitch said. 

Munson Healthcare has an “AA” rating and stable outlook with Fitch. The rating reflects the strength of the Traverse City, Mich.-based system’s market position and its leverage and liquidity profiles.  

MyMichigan Health has an “AA-” rating and stable outlook with Fitch. The Midland-based system reflects the system’s market position as the largest provider of acute care services and its leading market position in a sizable geographic area covering 25 counties in mid and northern Michigan, the rating agency said. 

North Mississippi Health Services has an “AA” rating and stable outlook with Fitch. The Tupelo-based system’s rating reflects its very strong cash position and strong market position, Fitch said. 

NewYork-Presbyterian Hospital has an “AA” rating and stable outlook with Fitch. The rating reflects the New York City-based system’s market position as one of New York’s major academic healthcare systems with a reputation that extends beyond the region, Fitch said. 

Novant Health has an “AA-” rating and stable outlook with Fitch. The Winston-Salem, N.C.-based system has a highly competitive market share in three separate North Carolina markets, Fitch said, including a leading position in Winston-Salem (46.8 percent) and second only to Atrium Health in the Charlotte area.  

NYC Health + Hospitals has an “AA-” rating with Fitch. The New York City system is the largest municipal health system in the country, serving more than 1 million New Yorkers annually in more than 70 patient locations across the city, including 11 hospitals, and employs more than 43,000 people. 

OhioHealth has an “AA+” rating and stable outlook with Fitch. The Columbus-based system has an exceptionally strong credit profile, very favorable leverage metrics and reliably strong profitability, Fitch said.    

Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The system’s upgrade from “A+” reflects the continued strength of the health system’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market, Fitch said.  

Phoenix Children’s Hospital has an “AA-” and stable outlook with Fitch. The rating reflects its position as a distinct leading provider of pediatric health services in a growing primary service area, Fitch said. 

The Queen’s Health System has an “AA” rating and stable outlook with Fitch. The Honolulu-based system’s rating reflects its leading state-wide market position, historically strong operating performance and diverse revenue streams, the rating agency said. 

Rush System for Health has an “AA-” and stable outlook with Fitch. The Chicago-based system has a strong financial profile despite ongoing labor issues and inflationary pressures, Fitch said. 

Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The Cape Girardeau, Mo.-based system enjoys robust operational performance and a strong local market share as well as manageable capital plans, Fitch said. 

Salem (Ore.) Health has an “AA-” rating and stable outlook with Fitch. The system has a “very strong” financial profile and a leading market share position, Fitch said. 

Sanford Health has an “AA-” rating and stable outlook with Fitch. The Sioux Falls, S.D.-based system rating reflects its leading inpatient market share positions in multiple markets and strong overall financial profile, the rating agency said. 

Stanford Health Care has an “AA” rating and stable outlook with Fitch. The Palo Alto, Calif.-based system’s rating is supported by its extensive clinical reach in the greater San Francisco and Central Valley regions and nationwide/worldwide destination position for extremely high-acuity services, Fitch said. 

SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system has a strong financial profile, multi-state presence and scale, with solid revenue diversity, Fitch said.  

St. Clair Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Pittsburgh-based system’s strong financial profile assessment, solid market position and historically strong operating performance, the rating agency said. 

St. Tammany Parish Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the Covington, La.-based system’s strong operating risk assessment and very strong financial profile supported by consistently robust operating cash flows, Fitch said.  

Texas Medical Center has an “AA-” rating and stable outlook with Fitch. The rating reflects the Houston-based system’s profitable service enterprise, its long and collaborative relationship with strong university, nonprofit and medical industry partners, and sizable financial reserve levels, Fitch said. 

TriHealth has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based system’s rating reflects its broad reach, high-acuity services and stable market position in a highly fragmented and competitive market, Fitch said.  

UChicago Medicine has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s broad and growing reach for high-acuity services and the considerable benefits it receives from its high degree of integration with the University of Chicago, Fitch said.   

UCHealth has an “AA” rating and stable outlook with Fitch. The Aurora, Colo.-based system’s margins are expected to remain robust, and the operating risk assessment remains strong, Fitch said.  

University of Kansas Health System has an “AA-” rating and stable outlook with S&P Global. The Kansas City-based system has a solid market presence, good financial profile and solid management team, though some balance sheet figures remain relatively weak to peers, the rating agency said. 

Virtua Health has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Marlton, N.J.-based system’s leading market position in a stable service area and the successful integration of the Lourdes Health System, Fitch said.  

VHC Health has an”AA-” rating and stable outlook with Fitch. The Arlington-based system has demonstrated strong operating cost flexibility, growth in high acuity service lines and an expanding outpatient footprint, Fitch said.  

WellSpan Health has an “Aa3” rating and stable outlook with Moody’s. The York, Pa.-based system has a distinctly leading market position across several contiguous counties in central Pennsylvania, and management’s financial stewardship and savings initiatives will continue to support sound operating cash flow margins when compared to peers, Moody’s said.

Willis-Knighton Health System has an “AA-” rating and stable outlook with Fitch. The Shreveport, La.-based system has a “dominant inpatient market position” and is well positioned to manage operating pressures, Fitch said.

California system’s 10.2% operating margin bucks national trend

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Mountain View, Calif.-based El Camino Health ended the first quarter with an impressive operating margin of 10.2 percent when many health systems saw their margins hover above zero or fall into the red. The system’s revenue for the quarter totaled $131,290. 

For the nine months ended March 31, the two-hospital system posted an operating gain of $141.4 million on revenue of just over $1 billion. 

However, like most health systems, El Camino’s expenses are substantially higher than the same period last year, increasing 10.6 percent year over year for the nine months ending March 31, 2023, to $881.9 million. 

The system is making a conscious effort to march down labor costs while also placing a significant emphasis on retention. In June, El Camino agreed a deal to increase pay for nurses by 16 percent over three years.

“Like nearly all hospitals, our nursing staff comprises the largest part of our workforce. With the recruitment of a single nurse estimated to be nearly $60,000, our primary strategy to reduce labor costs is to focus on decreasing turnover,” El Camino CEO Dan Woods told Becker’s.

“Our turnover rate for nurses is just about 8 percent while the turnover rate nationally is still running at 22 percent.”

In March, the system also received a credit rating upgrade from Moody’s, which noted the system’s “superlative cash metrics and operating performance.” Fitch Ratings also revised El Camino’s outlook to positive in February, noting that the system has a history of generating double-digit operating EBITDA margins, driven by a solid market position that features strong demographics and a very healthy payer mix.

Taking a historical view of hospital operating margins

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https://mailchi.mp/cc1fe752f93c/the-weekly-gist-july-14-2023?e=d1e747d2d8

So far, 2023 is shaping up to be a slightly better year for hospital performance, but it comes on the heels of unprecedented financial difficulties for the sector.

In the graphic above, we evaluated nearly 30 years of historical data from Kaufman Hall and the American Hospital Association to provide a broader perspective on hospital operating margins over time. 2020 and 2022 have been the only years in which a majority of hospitals—53 percent—posted a negative operating margin. 

During the most comparable periods of recent economic hardship, the “dot-com bubble burst” of the late 1990s and the 2009 Great Recession, the share of hospitals with negative operating margins amounted to only 42 and 32 percent, respectively.

With this context, hospitals’ current financial distress is more severe than anything we’ve seen in the past three decades. 

Healthcare is clearly no longer recession-proof: a four percent operating margin—the level needed for health systems to not only sustain operations but also invest in growth—feels even more elusive as labor costs remain high, surgical care continues to shift to outpatient settings, the second half of the Baby-Boom generation ages into Medicare, and deep-pocketed competitors compete for profitable services.

9 recent health system downgrades and outlook revisions

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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 Hospital Makeover—Part 2

Posted on by • Posted in Board, C-Suite, Financial Distress, Financial Instability, Financial Performance, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Labor Spend Management, Leadership, Leadership Vision, Leadership Will, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Physician Compensation, Physician Employment, State of the Union, Talent Management • Leave a comment
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America’s hospitals have a $104 billion problem.

That’s the amount you arrive at if you multiply the number of physicians employed by hospitals and health systems (approximately 341,200 as of January 2022, according to data from the Physicians Advocacy Institute and Avalere) by the median $306,362 subsidy—or loss—reported in our Q1 2023 Physician Flash Report.

Subsidizing physician employment has been around for a long time and such subsidies were historically justified as a loss leader for improved clinical services, the potential for increased market share, and the strengthening of traditionally profitable services.

But I am pretty sure the industry did not have $104 billion in losses in mind when the physician employment model first became a key strategic element in the hospital operating model. However, the upward reset in expenses brought on by the pandemic and post-pandemic inflation has made many downstream hospital services that historically operated at a profit now operate at breakeven or even at a loss. The loss leader physician employment model obviously no longer works when it mostly leads to more losses.

This model is clearly broken and in demand of a near-term fix. Perhaps the critical question then is how to begin? How to reconsider physician employment within the hospital operating plan?

Out of the box, rethink the physician productivity model. Our most recent Physician Flash Report data shows that for surgical specialties, there was a median $77 net patient revenue per provider wRVU. For the same specialties, there was a median $80 provider paid compensation per provider wRVU. In other words, before any other expenses are factored in, these specialties are losing $3 per wRVU on paid compensation alone. Getting providers to produce more wRVUs only makes the loss bigger.

It’s the classic business school 101 problem.

If a factory is losing $5 on every widget it produces, the answer is not to produce more widgets. Rather, expenses need to come down, whether that is through a readjustment of compensation, new compensation models that reward efficiency, or the more effective use of advanced practice providers.

Second, a number of hospital CEOs have suggested to me that the current employed physician model is quite past its prime. That model was built for a system of care that included generally higher revenues, more inpatient care, and a greater proportion of surgical vs. medical admissions. But overall, these trends were changing and then were accelerated by the Covid pandemic. Inpatient revenue has been flat to down. More clinical work continues to shift to the outpatient setting and, at least for the time being, medical admissions have been more prominent than before the pandemic.

Taking all this into account suggests that in many places the employed physician organizational and operating model is entirely out of balance. One would offer the calculated guess that there are too many coaches on the team and not enough players on the field. This administrative overhead was seemingly justified in a different loss leader environment but now it is a major contributor to that $104 billion industry-wide loss previously calculated.

Finally, perhaps the very idea of physician employment needs to be rethought.

My colleagues Matthew Bates and John Anderson have commented that the “owner” model is more appealing to physicians who remain independent then the “renter” model. The current employment model offers physicians stability of practice and income but appears to come at the cost of both a loss of enthusiasm and lost entrepreneurship. The massive losses currently experienced strongly suggest that new models are essential to reclaim physician interest and establish physician incentives that result in lower practice expenses, higher practice revenues, and steadily reduced overall subsidies.

Please see this blog as an extension of my last blog, “America’s Hospitals Need a Makeover.” It should be obvious that by analogy we are not talking about a coat of paint here or even new appliances in the kitchen.

The financial performance of America’s hospitals has exposed real structural flaws in the healthcare house. A makeover of this magnitude is going to require a few prerequisites:

  1. Don’t start designing the renovation unless you know specifically where profitability has changed within your service lines and by explicitly how much. Right now is the time to know how big the problem is, where those problems are located, and what is the total magnitude of the fix.
  2. The Board must be brought into the discussion of the nature of the physician employment problem and the depth of its proposed solutions. Physicians are not just “any employees.” They are often the engine that runs the hospital and must be afforded a level of communication that is equal to the size of the financial problem. All of this will demand the Board’s knowledge and participation as solutions to the physician employment dilemma are proposed, considered, and eventually acted upon.

The basic rule of home renovation applies here as well: the longer the fix to this problem is delayed the harder and more expensive the project becomes. The losses set out here certainly suggest that physician employment is a significant contributing factor to hospitals’ current financial problems overall. It would be an understatement to say that the time to get after all of this is right now.

Rural hospital closures rising again with end of COVID aid

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https://mailchi.mp/7f59f737680b/the-weekly-gist-june-30-2023?e=d1e747d2d8

After a brief reprieve thanks to COVID relief funds, rural hospital closures are once again on the rise, with 11 facilities already closing in the first half of this year. 

More rural facilities have already closed in 2023 than the previous two years combined, and this year is on pace to be the second-highest number of rural hospital beds lost since 2005. 

And the majority of rural hospitals that haven’t closed are experiencing negative operating margins, with almost one in three at immediate or high risk of closure due to declining volumes, shifting payer mix, and increased labor and supply costs.

Leaders at rural hospitals now face difficult decisions including drastically cutting services, merging with a larger system, or closing their doors altogether. The Centers for Medicare and Medicaid Services (CMS) launched the Rural Emergency Hospital Program recently, designed to financially support small rural hospitals that convert to providing emergency services only, but so far program uptake has been limited. 

While efforts to prop up hospitals will help to sustain access to care in the near term, rural communities ultimately need a new model for care, with reimagined facilities, supported by enhanced virtual connections to specialists and higher-acuity services.

45 health systems with strong finances

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Here are 45 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings, Moody’s Investors Service and S&P Global in 2023. 

Note: This is not an exhaustive list. Health system names were compiled from credit rating reports.

1. AdventHealth has an “AA” rating and stable outlook with Fitch. The rating reflects the  Altamonte Springs, Fla.-based system’s strong financial profile, characterized by still-adequate liquidity and moderate leverage, typically strong and highly predictable profitability, Fitch said. 

2. AnMed Health has an “AA-” rating and stable outlook with Fitch. The Anderson, S.C.-based system has maintained strong performance through the COVID-19 pandemic and current labor market pressures, Fitch said.  

3. Atrium Health has an “AA-” and stable outlook with S&P Global. The Charlotte, N.C.-based system’s rating reflects a robust financial profile, growing geographic diversity and expectations that management will continue to deploy capital with discipline. 

4. Banner Health has an “AA-” and stable outlook with Fitch. The Phoenix-based system’s rating highlights the strength of its core hospital delivery system and growth of its insurance division, Fitch said. 

5. BayCare Health System has an “AA” rating and stable outlook with Fitch. The Tampa, Fla.-based system’s rating reflects its excellent financial profile supported by its leading market position in a four-county area and the ability to sustain a solid operating outlook in the face of inflationary sector headwinds, Fitch said. 

6. Beacon Health System has an “AA-” rating and stable outlook with Fitch. The rating reflects the strength of the South Bend, Ind.-based system’s balance sheet, the rating agency said.   

7. Berkshire Health has an “AA-” rating and stable outlook with Fitch. The Pittsfield, Mass.-based system has a strong financial profile, solid liquidity and modest leverage, according to Fitch. 

8. Cape Cod Healthcare has an “AA-” and stable outlook with Fitch. The Hyannis, Mass.-based system’s rating reflects a dominant market position in its service area and historically solid operating results, the rating agency said. 

9. 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, Fitch said. 

10.CaroMont Health has an “AA-” rating and stable outlook with S&P Global. The Gastonia, N.C.-based system has a healthy financial profile and robust market share in a competitive region.  

11. CentraCare has an “AA-” rating and stable outlook with Fitch. The St. Cloud, Minn.-based system has a leading market position, and its management’s focus on addressing workforce pressures, patient access and capacity constraints will improve operating margins over the medium term, Fitch said. 

12. Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The Minneapolis-based system’s broad reach within the region continues to support long-term sustainability as a market leader and preferred provider for children’s health care, Fitch said. 

13. Concord (N.H.) Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the strength of Concord’s leverage and liquidity assessment and Fitch’s assessment that two recently acquired hospitals will be strategically and financially accretive. 

14. Cone Health has an “AA” rating and stable outlook with Fitch. The rating reflects the expectation that the Greensboro, N.C.-based system will gradually return to stronger results in the medium term, the rating agency said.

15. Cottage Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Santa Barbara, Calif.-based system’s leading market position and broad reach in a service area that exhibits modest population growth but consistently high demand for acute care services, Fitch said. 

16. El Camino Health has an “AA-” rating and stable outlook with Fitch. The Mountain View, Calif.-based system has a history of generating double-digit operating EBITDA margins, driven by a solid market position that features strong demographics and a very healthy payer mix, Fitch said. 

17. Froedtert Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Milwaukee-based system’s maintenance of a strong, albeit compressed, operating performance and a robust liquidity position, Fitch said. 

18. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based system’s rating is supported by its strong presence in its large and demographically favorable market, Fitch said.  

19. Harris Health System has an “AA” rating and stable outlook with Fitch. The Houston-based system has a “very strong” revenue defensibility, primarily based on the district’s significant taxing margin that provides support for operations and debt service, Fitch said.

20. Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by a leading market position in its immediate area and very strong financial profile, Fitch said.  

21. IU Health has an “AA” rating and stable outlook with Fitch. The Indianapolis-based system has a long track record of strong operating margins and an overall credit profile that is supported by a strong balance sheet, the rating agency said. 

22. Inspira Health has an “AA-” rating and stable outlook with Fitch. The Mullica Hill, N.J.-based system’s rating reflects its leading market position in a stable service area and a large medical staff supported by a growing residency program, Fitch said. 

23. Lucile Packard Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the Palo Alto, Calif.-based hospital’s role as a nationally known, leading children’s hospital, Fitch said. It also benefits from resilient clinical volumes and a solid market position, as well as its relationship with Stanford University and Stanford Health Care. 

24. Kaiser Permanente has an “AA-” and stable outlook with Fitch. The Oakland, Calif.-based system’s rating is driven by a strong financial profile, which is maintained despite a challenging operating environment in fiscal year 2022. 

25. Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The Rochester, Minn.-based system’s credit profile characterized by its excellent reputations for clinical services, research and education, Moody’s said.

26. McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The Grand Blanc, Mich.-based system has a leading market position over a broad service area covering much of Michigan and a track-record of profitability despite sector-wide market challenges in recent years, Fitch said. 

27. MemorialCare has an “AA-” rating and stable outlook with Fitch. The rating reflects the Fountain Valley, Calif.-based system’s strong financial profile and excellent leverage metrics despite its weaker operating performance, Fitch said. 

28. Memorial Sloan-Kettering Cancer Center has an “AA” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the New York City-based system’s national and international reputation as a premier cancer hospital will continue to support growth in its leading and increasing market share for its specialty services. 

29. Midland (Texas) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Midland’s exceptional market position and limited competition for acute-care services and growing outpatient services, Fitch said.  

30. Munson Healthcare has an “AA” rating and stable outlook with Fitch. The rating reflects the strength of the Traverse City, Mich.-based system’s market position and its leverage and liquidity profiles.  

31. North Mississippi Health Services has an “AA” rating and stable outlook with Fitch. The Tupelo-based system’s rating reflects its very strong cash position and strong market position, Fitch said. 

32. Novant Health has an “AA-” rating and stable outlook with Fitch. The Winston-Salem, N.C.-based system has a highly competitive market share in three separate North Carolina markets, Fitch said, including a leading position in Winston-Salem (46.8 percent) and second only to Atrium Health in the Charlotte area.  

33. NYC Health + Hospitals has an “AA-” rating with Fitch. The New York City system is the largest municipal health system in the country, serving more than 1 million New Yorkers annually in more than 70 patient locations across the city, including 11 hospitals, and employs more than 43,000 people. 

34. Orlando (Fla.) Health has an “AA-” and stable outlook with Fitch. The system’s upgrade from “A+” reflects the continued strength of the health system’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market, Fitch said.  

35. The Queen’s Health System has an “AA” rating and stable outlook with Fitch. The Honolulu-based system’s rating reflects its leading state-wide market position, historically strong operating performance and diverse revenue streams, the rating agency said. 

36. Rush System for Health has an “AA-” and stable outlook with Fitch. The Chicago-based system has a strong financial profile despite ongoing labor issues and inflationary pressures, Fitch said. 

37. Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The Cape Girardeau, Mo.-based system enjoys robust operational performance and a strong local market share as well as manageable capital plans, Fitch said. 

38. Salem (Ore.) Health has an “AA-” rating and stable outlook with Fitch. The system has a “very strong” financial profile and a leading market share position, Fitch said. 

39. Stanford Health Care has an “AA” rating and stable outlook with Fitch. The Palo Alto, Calif.-based system’s rating is supported by its extensive clinical reach in the greater San Francisco and Central Valley regions and nationwide/worldwide destination position for extremely high-acuity services, Fitch said. 

40. SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system has a strong financial profile, multi-state presence and scale, with solid revenue diversity, Fitch said.  

41. St. Clair Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Pittsburgh-based system’s strong financial profile assessment, solid market position and historically strong operating performance, the rating agency said. 

42. UCHealth has an “AA” rating and stable outlook with Fitch. The Aurora, Colo.-based system’s margins are expected to remain robust, and the operating risk assessment remains strong, Fitch said.  

43. University of Kansas Health System has an “AA-” rating and stable outlook with S&P Global. The Kansas City-based system has a solid market presence, good financial profile and solid management team, though some balance sheet figures remain relatively weak to peers, the rating agency said. 

44. WellSpan Health has an “Aa3” rating and stable outlook with Moody’s. The York, Pa.-based system has a distinctly leading market position across several contiguous counties in central Pennsylvania, and management’s financial stewardship and savings initiatives will continue to support sound operating cash flow margins when compared to peers, Moody’s said.

45. Willis-Knighton Health System has an “AA-” rating and stable outlook with Fitch. The Shreveport, La.-based system has a “dominant inpatient market position” and is well positioned to manage operating pressures, Fitch said.

Is the Traditional Hospital Strategy Aging Out?

Posted on by • Posted in Board, Business Case, Business Model, Financial Distress, Financial Performance, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Leadership, Leadership Culture, Leadership Intent, Leadership Legacy, Leadership Values, Leadership Vision, Leadership Will, Operating Margin, Operating Metrics, Operating Model, Operating Performance, Strategic Alignment, Strategic Imperative, Strategic Issue, Strategic Leadership, Strengths, Value, Value Proposition, Value-Based Healthcare • Leave a comment

https://www.kaufmanhall.com/insights/thoughts-ken-kaufman/traditional-hospital-strategy-aging-out

On October 1, 1908, Ford produced the first Model T automobile. More than 60 years later, this affordable, mass produced, gasoline-powered car was still the top-selling automobile of all time. The Model T was geared to the broadest possible market, produced with the most efficient methods, and used the most modern technology—core elements of Ford’s business strategy and corporate DNA.

On April 25, 2018, almost 100 years later, Ford announced that it would stop making all U.S. internal-combustion sedans except the Mustang.

The world had changed. The Taurus, Fusion, and Fiesta were hardly exciting the imaginations of car-buyers. Ford no longer produced its U.S. cars efficiently enough to return a suitable profit. And the internal combustion technology was far from modern, with electronic vehicles widely seen as the future of automobiles.

Ford’s core strategy, and many of its accompanying products, had aged out. But not all was doom and gloom; Ford was doing big and profitable business in its line of pickups, SUVs, and -utility vehicles, led by the popular F-150.

It’s hard to imagine the level of strategic soul-searching and cultural angst that went into making the decision to stop producing the cars that had been the basis of Ford’s history. Yet, change was necessary for survival. At the time, Ford’s then-CEO Jim Hackett said, “We’re going to feed the healthy parts of our business and deal decisively with the areas that destroy value.”

So Ford took several bold steps designed to update—and in many ways upend—its strategy. The company got rid of large chunks of the portfolio that would not be relevant going forward, particularly internal combustion sedans. Ford also reorganized the company into separate divisions for electric and internal combustion vehicles. And Ford pivoted to the future by electrifying its fleet.

Ford did not fully abandon its existing strategies. Rather, it took what was relevant and successful, and added that to the future-focused pivot, placing the F-150 as the lead vehicle in its new electric fleet.

This need for strategic change happens to all large organizations. All organizations, including America’s hospitals and health systems, need to confront the fact that no strategic plan lasts forever.

Over the past 25-30 years, America’s hospitals and health systems based their strategies on the provision of a high-quality clinical care, largely in inpatient settings. Over time, physicians and clinics were brought into the fold to strengthen referral channels, but the strategic focus remained on driving volume to higher-acuity services.

More recently, the longstanding traditional patient-physician-referral relationship began to change. A smarter, internet-savvy, and self-interested patient population was looking for different aspects of service in different situations. In some cases, patients’ priority was convenience. In other cases, their priority was affordability. In other cases, patients began going to great lengths to find the best doctors for high-end care regardless of geographic location. In other cases, patients wanted care as close as their phone.

Around the country, hospitals and health systems have seen these environmental changes and adjusted their strategies, but for the most part only incrementally. The strategic focus remains centered on clinical quality delivered on campus, while convenience, access, value, affordability, efficiency, and many virtual innovations remain on the strategic periphery.

Health system leaders need to ask themselves whether their long-time, traditional strategy is beginning to age out. And if so, what is the “Ford strategy” for America’s health systems?

The questions asked and answered by Ford in the past five years are highly relevant to health system strategic planning at a time of changing demand, economic and clinical uncertainty, and rapid innovation. For example, as you view your organization in its entirety, what must be preserved from the existing structure and operations, and what operations, costs, and strategies must leave? And which competencies and capabilities must be woven into a going-forward structure?

America’s hospitals and health systems have an extremely long history—in some cases, longer than Ford’s. With that history comes a natural tendency to stick with deeply entrenched strategies. Now is the time for health systems to ask themselves, what is our Ford F150? And how do we “electrify” our strategic plan going forward?

29 health systems ranked by operating margins

Posted on by • Posted in Financial Performance, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Health System, Hospital, Hospital Industry, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue • Leave a comment
https://www.beckershospitalreview.com/finance/29-health-systems-ranked-by-operating-margins.html?utm_medium=email&utm_content=newsletter

The median year-to-date operating margin index for hospitals improved slightly in April to 0 percent. While recent reports show signs of improving margins, they remain far below historical norms, and inflation and workforce expenses continue to challenge hospitals’ bottom lines.

“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a May 31 report. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”

Here are 29 health systems ranked by their operating margins in the first quarter: 

1. Tenet Healthcare (Dallas)

Revenue: $5.02 billion
Expenses: $4.48 billion
Operating income/loss: $603 million
Operating margin: 12 percent

2. HCA Healthcare (Nashville, Tenn.)

Revenue: $15.59 billion
Expenses: $13.67 billion
Operating income/loss: $1.54 billion
Operating margin: 9.9 percent

3. Community Health Systems (Franklin, Tenn.)

Revenue: $3.108 billion
Expenses: $3.111 billion
Operating income/loss: $210 million
Operating margin: 6.7 percent

4. BJC HealthCare (St. Louis)

Revenue: $1.72 billion
Expenses: $1.67 billion
Operating income/loss: $59.5 million 
Operating margin: 3.5 percent

5. Banner Health (Phoenix)

Revenue: $3.51 billion
Expenses: $3.38 billion
Operating income/loss: $128 million
Operating margin: 3.6 percent

6. Mayo Clinic (Rochester, Minn.)

Revenue: $4.27 billion
Expenses: $4.12 billion
Operating income/loss: $149 million
Operating margin: 3.5 percent

7. Intermountain Health (Salt Lake City)

Revenue: $3.99 billion
Expenses: $3.70 billion
Operating income/loss: $104 million
Operating margin: 2.6 percent

8. Sutter Health (Sacramento, Calif.)

Revenue: $3.82 billion 
Expenses: $3.74 billion
Operating income/loss: $88 million 
Operating margin: 2.3 percent

9. IU Health (Indianapolis)

Revenue: $2.08 billion
Expenses: $2.04 billion
Operating income/loss: $45.1 million
Operating margin: 2.1 percent

10. Trinity Health (Livona, Mich.) 

*Data is for nine-month period 
Revenue: $15.95 billion
Expenses: $16.21 billion
Operating income/loss: ($283.5 million) 
Operating margin: 1.8 percent

11. Montefiore (New York City) 

Revenue: $1.91 billion
Expenses: $1.88 billion
Operating income/loss: $32 million
Operating margin: 1.7 percent

12. UPMC (Pittsburgh)

Revenue: $6.9 billion
Expenses: $6.8 billion
Operating income/loss: $100.4 million
Operating margin: 1.5 percent

13. ThedaCare (Appleton, Wis.)

Revenue: $306.4 million
Expenses: $302.8 million
Operating income/loss: $3.6 million
Operating margin: 1.2 percent

14. Cleveland Clinic

Revenue: $3.51 billion
Expenses: $3.28 billion
Operating income/loss: $32.3 million
Operating margin: 0.9 percent

15. Kaiser Permanente (Oakland, Calif.)

Revenue: $25.2 billion
Expenses: $25 billion
Operating income/loss: $233 million
Operating margin: 0.9 percent

16. Advocate Health (Charlotte, N.C.)

Revenue: $7.54 billion
Expenses: $7.53 billion
Operating income/loss: $10.4 million
Operating margin: 0.1 percent

17. Universal Health Services (King of Prussia, Pa.)

Revenue: $3.47 billion
Expenses: $3.19 billion
Operating income/loss: $278,700
Operating margin: 0 percent

18. MedStar Health (Columbia, Md.)

Revenue: $1.928 billion
Expenses: $1.927 billion
Operating income/loss: $400,000 
Operating margin: 0 percent

19. Geisinger (Danville, Pa.)

Revenue: $1.84 billion
Expenses: $1.88 billion
Operating income/loss: ($36,068)
Operating margin: 0 percent

20. Mass General Brigham

Revenue: $4.5 billion
Expenses: $4.5 billion
Operating income/loss: ($6 million)
Operating margin: (0.1 percent)

21. Novant Health (Winston-Salem, N.C.) 

Revenue: $1.939 billion
Expenses: $1.954 billion
Operating income/loss: ($15.18 million) 
Operating margin: (0.8 percent)

22. Scripps Health

Revenue: $1.01 billion
Expenses: $1.03 billion
Operating income/loss: ($22.2 million) 
Operating margin: (2.2 percent)

23. UnityPoint Health

Revenue: $1.09 billion
Expenses: $1.12 billion
Operating income/loss: ($29.03 million)
Operating margin: (2.7 percent)

24. SSM Health (St. Louis)

Revenue: $2.46 billion 
Expenses: $2.53 billion
Operating income/loss: ($68.4 million)
Operating margin: (2.8 percent)

25. Marshfield (Wis.) Clinic

Revenue: $779.7 million
Expenses: $812.3 million
Operating income/loss: (32.6 million)
Operating margin: (4.2 percent)

26. Providence (Renton, Wash.) 

Revenue: $6.8 billion
Expenses: $7.145 billion
Operating income/loss: ($345 million)
Operating margin: (5.1 percent)

27. MultiCare (Tacoma, Wash.) 

Revenue: $1.16 billion
Expenses: $1.22 billion
Operating income/loss: ($59.9 million)
Operating margin: (5.2 percent)

28. CommonSpirit (Chicago) 

Revenue: $8.3 billion
Expenses: $8.9 billion
Operating income/loss: ($658 million) 
Operating margin: (8 percent)

29. Ascension (St. Louis)

Revenue: $6.94 billion 
Expenses: $7.62 billion 
Operating income/loss: ($1.36 billion)
Operating margin: (19.6 percent)

Trinity Health sees improving margins but still operating at a loss despite gains in Q3

Posted on by • Posted in Financial Performance, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Health System, Hospital, Hospital Industry, Net Income, Nonoperating Income, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment

https://www.fiercehealthcare.com/providers/trinity-health-still-operating-loss-despite-gains-q3-improving-margins

Despite a reasonably solid third quarter, Trinity Health is still operating at a loss in its 2023 fiscal year, according to a new filing.

The health system’s fiscal year began July 1, 2022, with the latest figures covering the first nine months. Its latest operating loss shrank to $263.1 million from the prior six months’ $298 million loss. Fiscal year 2023 operating revenue currently stands at $15.9 billion, up from the same period last year.

The nonprofit health system attributed its operating revenue growth to several acquisitions (MercyOne, North Ottawa Community Health System, Genesis Health System), which collectively added $1 billion of operating revenue. Net income for the last nine months was $856.3 million, compared to $43 million in the same period the prior year.

Though inpatient volumes are stabilizing to “a new normal,” management wrote in the latest filing, most of Trinity’s revenue comes from outpatient and other non-patient revenue. Operating expenses rose $1.1 billion compared to the same period in fiscal year 2022, mostly driven by the acquisitions. 

Nonoperating income was $1.2 billion during the first nine months of fiscal year 2023, up from $264.6 million in the first six months. This hike was driven partly by a $629.3 million increase in investment returns.

The health system’s operating margin was 1.6%, per the latest filing, compared to 0.1% during the same period a year ago. Margins were affected by expenses outpacing revenue, primarily driven by premium labor rates and inflation impacting supplies as well as a $137 million reduction in CARES Act grant funding. 

Trinity reports $10.2 billion in unrestricted cash and investments, including 180 days cash on hand compared to 211 days in fiscal year 2022, in its latest filing.

Trinity is focused on diversifying its business by shifting to ambulatory, home health, PACE, urgent care, specialty pharmacy and telehealth. The filing also noted the recent launch of a new care delivery model dubbed TogetherTeam, involving on-site and virtual nurses, that is expected to be implemented systemwide by the end of its 2024 fiscal year.

Salaries, wages and employee benefit costs rose 2.2%, offset by a reduction of $54.6 million in executive compensation and $39.7 million more pharmacy rebates than in the same period in fiscal year 2022. Same-facility contract labor costs decreased more than 40% to $193.9 million, reflecting “unprecedented” pandemic-related costs during the third quarter in 2022. 

Trinity “continues to use strong cost controls over contract labor and other operational spending as colleague investment and utilization of its FirstChoice internal staffing agency promotes labor stabilization,” management wrote.

Trinity Health spans 88 acute care hospitals and hundreds of other care locations in 26 states and purports to have the second-largest Medicare PACE (Program of All-inclusive Care for the Elderly) program in the country. It provided services to 1.3 million people and reported a community benefit and charity of $1.4 billion in fiscal year 2022.