14 health systems with strong finances

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

16 hospitals with strong finances

Here are 16 hospitals and health health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. Morristown, N.J.-based Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The health system has strong operating performance and liquidity metrics, Moody’s said. The credit rating agency expects Atlantic Health System to sustain strong performance to support capital spending. 

2. Children’s Hospital of Akron (Ohio) has an “AA-” rating and stable outlook with Fitch. The hospital has strong operating performance and a leading market position as Akron’s only standalone pediatric hospital, Fitch said. The credit rating agency expects the organization’s strong profitability and limited capital needs to lead to liquidity growth. 

3. Milwaukee-based Children’s Wisconsin has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading statewide market share for children’s healthcare services, solid cash flow, strong revenue growth and a robust balance sheet, Moody’s said. The credit rating agency expects Children’s Wisconsin’s balance sheet and debt metrics to remain strong. 

4. Greensboro, N.C.-based Cone Health has an “AA” rating and stable outlook with Fitch. The health system has a leading market share and a favorable payer mix, Fitch said. The health system’s broad operating platform and strategic capital investments should enable it to return to stronger operating results, the credit rating agency said. 

5. El Camino Health has an “AA-” rating and stable outlook with Fitch. El Camino Health, which includes hospital campuses in Los Gatos, Calif., and Mountain View, Calif., has a solid market share in a competitive market and a stable payer mix, Fitch said. The credit rating agency said El Camino Health’s balance sheet provides moderate financial flexibility. 

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

7. Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. The Boston-based health system has an excellent clinical reputation, good financial performance and strong balance sheet metrics, Moody’s said. The credit rating agency said it expects Mass General Brigham to maintain a strong market position and stable financial performance. 

8. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said Mayo Clinic’s strong market position and patient demand will drive favorable financial results. The health system “will continue to leverage its excellent reputation and patient demand to continue generating favorable operating performance while maintaining strong balance sheet ratios,” Moody’s said. 

9. Memorial Sloan Kettering Cancer Center in New York City has an “AA” rating and stable outlook with Fitch and an “AA-” rating and stable outlook with S&P. Memorial Sloan Kettering Cancer Center’s national and international reputation as a premier cancer hospital will continue to support the organization’s growth, Fitch said. The hospital has a leading and growing market share for its specialty services, according to the credit rating agency. 

10. Methodist Health System has an “Aa3” rating and stable outlook with Moody’s. The Dallas-based system has strong operating performance, and investments in facilities have allowed it to continue to capture more market share in the fast-growing Dallas-Fort Worth, Texas, area, Moody’s said. The credit rating agency said it expects Methodist Health System’s strong operating performance and favorable liquidity to continue. 

11. Albuquerque, N.M.-based Presbyterian Healthcare Services has an “Aa3” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with Fitch. The health system has a leading statewide market share, strong revenue growth and a healthy balance sheet, Moody’s said. The credit rating agency said it expects Presbyterian Healthcare Services’ operations to continue to improve and its balance sheet and debt metrics to remain strong. 

12. Chicago-based Rush Health has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile and a broad reach for high-acuity services as a leading academic medical center, Fitch said. The credit rating agency expects Rush’s services to remain profitable over time. 

13. Stanford (Calif.) Health Care has an “AA” rating and stable outlook with Fitch. The health system has extensive clinical reach in a competitive market and its financial profile is improving, Fitch said. The health system’s EBITDA margins rebounded in fiscal year 2021 and are expected to remain strong going forward, the crediting rating agency said. 

14. St. Clair Hospital in Pittsburgh has an “AA-” rating and stable outlook with Fitch. The hospital has a strong financial profile and a solid market position in the competitive greater Pittsburgh-area healthcare market, Fitch said. The credit rating agency expects the hospital’s margins to remain solid, driven by growth in key service lines. 

15. University of Chicago Medical Center has an “AA-” rating and stable outlook with Fitch. The credit rating agency said it expects University of Chicago Medical Center’s capital-related ratios to remain strong, in part because of its broad reach of high-acuity services. 

16. University of Iowa Hospitals and Clinics has an “Aa2” rating and stable outlook with Moody’s. The Iowa City-based health system, the only academic medical center in Iowa, has strong patient demand and excellent financial management, Moody’s said. The credit rating agency said it expects the health system to continue to manage the pandemic with improved operating cash flow margins.

Saying farewell (for now) to a terrible financial quarter

Judging from our recent conversations with health system executives, we’d guess CEOs across the industry woke up this morning glad to see the first quarter in the rearview mirror.

Almost everyone we’ve spoken to has told us that the past three months have been miserable from an operating margin perspective—skyrocketing labor costs, rising drug and supply prices, and stubbornly long length of stay, particularly among Medicare patients.

In the words of one CFO, “I’ve never seen anything like this. For the first time, we budgeted for a negative margin, and still didn’t hit our target. I’m not sure how long our board will let us stay on this trajectory before things change.”

Yet few of the drivers of poor financial performance appear to be temporary. Perhaps the over-reliance on agency nursing staff will wane as COVID volumes bottom out (for how long remains unknown), but overall labor costs will remain high, there’s no immediate relief for supply chain issues, and COVID-related delays in care have left many patients sicker—and thus in need of more costly care. Plus, the lifeline of federal relief funds is rapidly dwindling, if not already gone.

Expect the next three quarters (and beyond) to bring a greater focus on cost cutting, especially as not-for-profit systems struggle to defend their bond ratings in the face of rising interest rates.

Buckle up, it’s going to be a bumpy landing.

Affiliation improves rural hospital sustainability

https://mailchi.mp/161df0ae5149/the-weekly-gist-december-10-2021?e=d1e747d2d8

In 2020, a record-breaking 19 rural hospitals closed their doors due to a combination of worsening economic conditions, changing payer mix, and declining patient volumes. But many more are looking to affiliate with larger health systems to remain open and maintain access to care in their communities. The graphic above illustrates how rural hospital affiliations (including acquisitions and other contractual partnerships) have increased over time, and the resulting effects of partnerships.

Affiliation rose nearly 20 percent from 2007 to 2016; today nearly half of rural hospitals are affiliated with a larger health system.

Economic stability is a primary benefit: the average rural hospital becomes profitable post-affiliation, boosting its operating margin roughly three percent in five years. But despite improved margins, many affiliated rural hospitals cut some services, often low-volume obstetrics programs, in the years following affiliation. 

Overall, the relationship likely improves quality: a recent JAMA study found that rural hospital mergers are linked to better patient mortality outcomes for certain conditions, like acute myocardial infarction. Still, the ongoing tide of rural hospital closures is concerning, leaving many rural consumers without adequate access to care. Late last month, the Department of Health and Human Services announced it would distribute another $7.5B in American Rescue Plan Act funds to rural providers. 

While this cash infusion may forestall some closures, longer-term economic pressures, combined with changing consumer demands, will likely push a growing number of rural hospitals to seek closer ties with larger health systems.

14 health systems with strong finances

What next for the US dollar? - TalkingPoint - Schroders

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

1. Advocate Aurora Health has an “Aa3” rating and positive outlook with Moody’s. The health system, which has dual headquarters in Milwaukee and Downers Grove, Ill., has a leading market share in two regions and strong financial discipline, Moody’s said. The credit rating agency said it expects Advocate Aurora Health’s operating cash flow margins to return to pre-pandemic levels. 

2. Pinehurst, N.C.-based FirstHealth of the Carolinas has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and stable operating performance, despite disruption from the COVID-19 pandemic, Fitch said. The health system’s revenue in the first quarter of fiscal 2021 rebounded to levels close to historical trends, according to the credit rating agency. 

3. Indianapolis-based Indiana University Health has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and positive outlook with Fitch. Cost controls and patient volume will help the system sustain strong margins and liquidity, Moody’s said. 

4. Rapid City, S.D.-based Monument Health has an “AA-” rating and stable outlook with Fitch. The health system has solid operating margins that Fitch expects to remain stable over the near term. Monument Health’s operating margins will continue to support liquidity growth and capital spending levels, the credit rating agency said. 

5. Chicago-based Northwestern Medicine has an “Aa2” rating and stable outlook with Moody’s, and an “AA+” rating and stable outlook with S&P. The system’s consolidated operating model will allow it to maintain a strong financial position while effectively executing strategies, Moody’s said. The credit rating agency expects Northwestern Medicine to expand its prominent market position in the broader Chicago region because of its strong brand and affiliation with Northwestern University’s Feinberg School of Medicine. 

6. Renton, Wash.-based Providence has an “AA-” rating and stable outlook with Fitch and an “Aa3” rating and stable outlook with Moody’s. Fitch said Providence has a long-term strategic advantage over most of its peers because it has invested heavily in developing technology in recent years, and the system’s plan to transform healthcare delivery through the use of data and technology has been undeterred through the COVID-19 pandemic. Fitch said it expects Providence’s cash flow margins to be close to 7 percent in the coming years. 

7. Livingston, N.J.-based RWJBarnabas Health has an “Aa3” rating and stable outlook with Moody’s. Moody’s said it expects RWJBarnabas, the largest integrated academic health system in New Jersey, to see near-term revenue growth and to execute on several strategic fronts while achieving targeted financial performance.  

8. Broomfield, Colo.-based SCL Health has an “AA-” rating and stable outlook with Fitch and an “Aa3” rating and stable outlook with Moody’s. The health system has consistently improved its liquidity levels and has a long track record of exceptional operations, Fitch said. SCL Health is well positioned for change in the healthcare sector because it has built up cash reserves over time, according to the credit rating agency. 

9. San Diego-based Scripps Health has an “Aa3” rating and stable outlook with Moody’s. The health system has ample liquidity coverage, an extensive footprint and strong brand and market share within San Diego County, Moody’s said. The credit rating agency said it expects Scripps to weather current operating challenges and to grow operating cash flow over the long term. 

10. Norfolk, Va.-based Sentara Healthcare has an “Aa2” rating and stable outlook with Moody’s. The health system has strong margins, and Moody’s said it expects the system to maintain a strong financial position and balance sheet. 

11. Arlington-based Texas Health Resources has an “Aa2” rating and stable outlook with Moody’s. The health system has a strong cash position, which will be boosted by favorable investment gains and bond proceeds, Moody’s said. Based on performance in the second quarter of this year, Moody’s expects Texas Health Resources’ patient volume and operating cash flow margins to recover to pre-COVID-19 levels. 

12. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said it expects the system to maintain strong operating performance and cash flow. The system benefits as the only academic medical center in Iowa, according to Moody’s. 

13. Des Moines, Iowa-based UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The system has strong leverage metrics, and it benefited from strong market returns during the pandemic. The system’s days with cash on-hand increased to 285 days at the end of 2020, up from 231 days at the end of 2019, according to the credit rating agency. 

14. Kansas City-based University of Kansas Health System has an “AA-” rating and stable outlook with Fitch. The health system has solid operating results and has sustained significant revenue growth, Fitch said. The system’s profitability dipped in fiscal year 2020 because of the COVID-19 pandemic, but its profitability rebounded in fiscal year 2021, according to the credit rating agency. 

As fraud rises, CFOs must approach numbers skeptically, report finds

https://www.cfodive.com/news/Center-Audit-Quality-financial-reporting-fraud/593123/

Executives might be committed to accuracy, but middle managers and others throughout the organization must be on board, too.

The pandemic is increasing financial reporting fraud, putting the onus on CFOs to create an organization-wide system that prevents wrongdoing, a coalition of auditing and other oversight groups said in a report released today.

Financial statement fraud in public companies is real and that risk has only increased during the Covid-19 pandemic,” said Julie Bell Lindsay, executive director of the Center for Audit Quality, one of four groups to release the report.

To help ensure the integrity of their company’s financial reporting, CFOs can’t rely on external auditors as their bulwark against fraud; they must weave protection into the fabric of the organization and exercise the same skepticism toward numbers auditors are trained to do.

“The strongest fraud deterrent and detection program requires extreme diligence from all participants in the financial reporting system,” Lindsay said. “Certainly, you have internal and external auditors, but you also have regulators, audit committees and, especially, public company management.”

Heightened stress

The report looks at SEC enforcement data from 2014 to 2019, a period of relative calm Linsday said can help set a baseline for assessing how much in pandemic-caused fraud regulators will find when they do their post-crisis analysis.

“The timing of this report is really a great way to … remind all the folks in the financial reporting ecosystem that … the pressures for fraud to happen are strong right now,” she said. 

Improper revenue recognition comprises about 40% of wrongdoing in financial reporting, more than any other type, a finding that tracks an SEC analysis released last August. 

Companies tend to manipulate revenue in four ways:

  1. The timing of recognition
  2. The value applied
  3. The source
  4. The percentage of contract completion claimed

The report singles out revenue-recognition manipulation by OCZ Technology Group, a solid-state drive manufacturer that went bankrupt in 2013, as a typical case.

The company had to restate its revenues by more than $100 million after it was caught mis-characterizing sales discounts as marketing expenses, shipping more goods to a large customer than it could be expected to sell, and withholding information on product returns.

The CEO was charged with fraud and the CFO with accounting, disclosure, and internal accounting controls failures.

The report lists three other common types of fraudmanipulation of financial reserves, manipulation of inventories, and improper calculation of impairment.

Reserve issues involve how, and when, balances are changed, and how expenses are classified; inventory issues involve the amounts that are listed and how much sales cost; and impairment issues involve the timing and accuracy of the calculation. 

Increase expected

More of these kinds of problems will likely be found to be happening because of the pandemic, the report said. 

“This is where all of this comes to a head,” Lindsay said. “You certainly can see pressure, because some companies are struggling right now and there can be pressure to meet numbers, analysts expectations.”

The pressure finance professionals face is part of what the report calls a “fraud triangle,” a convergence of three factors that can lead to fraud: pressure, opportunity and rationalization.

In the context of the pandemic, pressure comes as companies struggle with big drops in revenue; opportunity arises as employees work remotely; and the rationalization for fraud is reinforced by the unprecedented challenges people are facing. 

“It could be anything,” said Lindsay. “‘My wife just lost her job, so I need to make up for it.'”

The report lists fraud types that analysts expect are rising because of the pandemic:

  • Fabrication of revenue to offset losses.
  • Understatement of accounts receivable reserves as customers delay payments. 
  • Manipulation of compliance with debt covenants. 
  • Unrecognized inventory impairments.
  • Over- or understated accounting estimates to meet projection.

About a dozen types in all are listed. 

“Past crises have proven that at any time of large-scale disruption or stress on an economy or industry, companies should be prepared for the possibility of increased fraud.” the report said. 

Lindsay stressed three lessons she’d like to see CFOs take away from the report.

First, the potential for fraud in their companies shouldn’t be an afterthought. Second, protection against it is management’s responsibility but there’s also a role for company’s audit committee, its internal auditors and it’s external auditors. Third, CFOs and the finance executives they work with, including at the middle management level, must bring that same skepticism toward the numbers that auditors are trained to bring.

“Professional skepticism is a core competency of the external auditor and, quite frankly, the internal auditor,” she said. “Management and committee members are not necessarily trained on what it is, but it doesn’t mean you shouldn’t be exercising skepticism, [which is] asking questions about the numbers that are being reported. Is this exactly what happened? Do we have weaknesses? Do we have areas of positivity? It’s really about drilling down and having a dialogue and not just taking the numbers at face value.”

In addition to the Center for Audit Quality, Mitigating the Risks of Common Fraud Schemes: Insights From SEC Enforcement Actions was prepared by Financial Executives International, The Institute of Internal Auditors and the National Association of Corporate Directors.

14 health systems with strong finances

14 health systems with strong finances

Hospital Mergers, Acquisitions, and Affiliations | Case Study – RMS

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

1. St. Louis-based Ascension has an “AA+” rating and stable outlook with Fitch and an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile and a significant presence in several key markets, Fitch said. The credit rating agency expects Ascension will continue to produce healthy operating margins. 

2. Charlotte, N.C.-based Atrium Health has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. Atrium and Winston-Salem, N.C.-based Wake Forest Baptist Health merged in October. The addition of the Winston-Salem service area and Wake Forest Baptist’s academic and research programs enhance Atrium’s position within the highly competitive North Carolina healthcare market, S&P said. 

3. Phoenix-based Banner Health has an “AA-” rating and stable outlook with Fitch and S&P. Banner’s financial profile is strong, even taking into consideration the market volatility that occurred in the first quarter of 2020, Fitch said. The credit rating agency expects the system to continue to improve operating margins and to generate cash flow sufficient to sustain strong key financial metrics. 

4. Dallas- based Baylor Scott & White Health has an “Aa3” rating and stable outlook with Moody’s. The system has strong liquidity and is the largest nonprofit health system in Texas, Moody’s said. The credit rating agency expects Baylor Scott & White Health to continue to benefit from its centralized operating model, proven ability to execute complex strategies and well-developed planning abilities. 

5. Newark, Del.-based ChristianaCare Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has extensive clinical depth and includes Delaware’s largest teaching hospital, Moody’s said. The system’s strong market position will help it resume near pre-pandemic level margins in fiscal year 2021, according to Moody’s. 

6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile, and Moody’s expects Inova’s balance sheet to remain exceptionally strong. 

7. Philadelphia-based Main Line Health has an “AA” rating and stable outlook with Fitch. The credit rating agency expects the system’s operations to recover after the COVID-19 pandemic and for it to resume its track record of strong operating cash flow margins. 

8. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The system has an excellent reputation and generates strong patient demand at its academic medical centers in Minnesota, Arizona and Florida, Moody’s said. The credit rating agency said strong patient demand and proactive expense control measures would likely fuel good results for Mayo for the fiscal year that ended Dec. 31.

9. Midland-based MidMichigan Health has an “AA-” rating and stable outlook with Fitch. The system generated healthy operational levels through fiscal year 2020, and Fitch expects it to continue generating strong cash flow. 

10. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins. 

11. Winston-Salem, N.C.-based Novant Health has an “AA-” rating and stable outlook with Fitch. The system has strong margins and each of its markets have met or exceeded budgeted expectations over the past four years, Fitch said.  

12. Albuquerque, N.M.-based Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and a leading market position in Albuquerque and throughout New Mexico, Fitch said. The credit rating agency said it believes Presbyterian Healthcare Services is more resilient to pandemic disruptions than most other hospital systems. 

13. Renton, Wash.-based Providence has an “Aa3” rating and stable outlook with Moody’s. Providence has a large revenue base and a leading market share in most of its markets, according to Moody’s. The credit rating agency expects the system’s operations to improve this year. 

14. Livonia, Mich.-based Trinity Health has an “AA-” rating and stable outlook with Fitch. The rating is driven by Trinity’s national size and scale, with significant market presence in several states, Fitch said. The credit rating agency expects the system’s operating margins to improve in the long term. 

Bruising labor battles put Kaiser Permanente’s reputation on the line

Bruising labor battles put Kaiser Permanente’s reputation on the line

Image result for Bruising labor battles put Kaiser Permanente’s reputation on the line

The ongoing labor battles have undermined the health giant’s once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls “members” — and is exposing it to new scrutiny from politicians and health policy analysts.

Kaiser Permanente, which just narrowly averted one massive strike, is facing another one Monday.

The ongoing labor battles have undermined the health giant’s once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls “members” — and is exposing it to new scrutiny from politicians and health policy analysts.

As the labor disputes have played out loudly, ricocheting off the bargaining table and into the public realm, some critics believe that the nonprofit health system is becoming more like its for-profit counterparts and is no longer living up to its foundational ideals.

Compensation for CEO Bernard Tyson topped $16 million in 2017, making him the highest-paid nonprofit health system executive in the nation. The organization also is building a $900 million flagship headquarters in Oakland. And it bid up to $295 million to become the Golden State Warriors’ official health care provider, the San Francisco Chronicle reported. The deal gave the health system naming rights for the shopping and restaurant complex surrounding the team’s new arena in San Francisco, which it has dubbed “Thrive City.”

The organization reported $2.5 billion in net income in 2018 and its health plan sits on about $37.6 billion in reserves.

Against that backdrop of wealth, more than 80,000 employees were poised to strike last month over salaries, retirement benefits and concerns over outsourcing and subcontracting. Nearly 4,000 members of its mental health staff in California are threatening to walk out Monday over the long wait times their patients face for appointments.

“Kaiser’s primary mission, based on their nonprofit status, is to serve a charitable mission,” said Ge Bai, associate professor of accounting and health policy at Johns Hopkins University. “The question is, do they need such an excessive, fancy flagship space? Or should they save money to help the poor and increase employee salaries?”

Lawmakers in California, Kaiser Permanente’s home state, recently targeted it with a new financial transparency law aimed at determining why its premiums continue to increase.

There’s a growing suspicion “that these nonprofit hospitals are not here purely for charitable missions, but instead are working to expand market share,” Bai said.

The scrutiny marks a disorienting role-reversal for Kaiser, an integrated system that acts as both health insurer and medical provider, serving 12.3 million patients and operating 39 hospitals across eight states and the District of Columbia. The bulk of its presence is in California. (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)

Many health systems have tried to imitate its model for delivering affordable health care, which features teams of salaried doctors and health professionals who work together closely, and charges few if any extraneous patient fees. It emphasizes caring and community with slogans like “Health isn’t an industry. It’s a cause,” and “We’re all in this together. And together, we thrive.”

Praised by President Barack Obama for its efficiency and high-quality care, the health maintenance organization has tried to set itself apart from its profit-hungry, fee-for-service counterparts.

Now, its current practices — financial and medical — are getting a more critical look.

As a nonprofit, Kaiser doesn’t have to pay local property and sales taxes, state income taxes and federal corporate taxes, in exchange for providing “charity care and community benefits” — although the federal government doesn’t specify how much.

As a percentage of its total spending, Kaiser Permanente’s charity care spending has decreased from 1.29% in 2012 to 0.8% in 2017. Other hospitals in California have exhibited a similar decrease, saying there are fewer uninsured patients who need help since the Affordable Care Act expanded insurance coverage.

CEO Tyson told California Healthline that he limits operating income to about 2% of revenue, which pays for things like capital improvements, community benefit programs and “the running of the company.”

“The idea we’re trying to maximize profit is a false premise,” he said.

The organization is different from many other health systems because of its integrated model, so comparisons are not perfect, but its operating margins were smaller and more stable than other large nonprofit hospital groups in California. AdventHealth’s operating margin was 7.15% in 2018, while Dignity Health had losses in 2016 and 2017.

Tyson said that executive compensation is a “hotspot” for any company in a labor dispute. “In no way would I try to justify it or argue against it,” he said of his salary. In addition to his generous compensation, the health plan paid 35 other executives more than $1 million each in 2017, according to its tax filings.

Even its board members are well-compensated. In 2017, 13 directors each received between $129,000 and $273,000 for what its tax filings say is five to 10 hours of work a week.

And that $37.6 billion in reserves? It’s about 17 times more than the health plan is required by the state to maintain, according to the California Department of Managed Health Care.

Kaiser Permanente said it doesn’t consider its reserves excessive because state regulations don’t account for its integrated model. These reserves represent the value of its hospitals and hundreds of medical offices in California, plus the information technology they rely on, it said.

Kaiser Permanente said its new headquarters will save at least $60 million a year in operating costs because it will bring all of its Oakland staffers under one roof. It justified the partnership with the Warriors by noting it spans 20 years and includes a community gathering space that will provide health services for both members and the public.

Kaiser has a right to defend its spending, but “it’s hard to imagine a nearly $300 million sponsorship being justifiable,” said Michael Rozier, an assistant professor at St. Louis University who studies nonprofit hospitals.

The Service Employees International Union-United Healthcare Workers West was about to strike in October before reaching an agreement with Kaiser Permanente.

Democratic presidential candidates Kamala HarrisBernie SandersElizabeth Warren and Pete Buttigieg, as well as 132 elected California officials, supported the cause.

California legislators this year adopted a bill sponsored by SEIU California that will require the health system to report its financial data to the state by facility, as opposed to reporting aggregated data from its Northern and Southern California regions, as it currently does. This data must include expenses, revenues by payer and the reasons for premium increases.

Other hospitals already report financial data this way, but the California legislature granted Kaiser Permanente an exemption when reporting began in the 1970s because it is an integrated system. This created a financial “black hole” said state Sen. Richard Pan (D-Sacramento), the bill’s author.

“They’re the biggest game in town,” said Anthony Wright, executive director of the consumer group Health Access California. “With great power comes great responsibility and a need for transparency.”

Patient care, too, is under scrutiny.

California’s Department of Managed Health Care fined the organization $4 million over mental health wait times in 2013, and in 2017 hammered out an agreement with it to hire an outside consultant to help improve access to care. The department said Kaiser Permanente has so far met all the requirements of the settlement.

But according to the National Union of Healthcare Workers, which is planning Monday’s walkout, wait times have just gotten worse.

Tyson said mental health care delivery is a national issue — “not unique to Kaiser Permanente.” He said the system is actively hiring more staff, contracting with outside providers and looking into using technology to broaden access to treatment.

At a mid-October union rally in Oakland, therapists said the health system’s billions in profits should allow it to hire more than one mental health clinician for every 3,000 members, which the union says is the current ratio.

Ann Rivello, 50, who has worked periodically at Kaiser Permanente Redwood City Medical Center since 2000, said therapists are so busy they struggle to take bathroom breaks and patients wait about two months between appointments for individual therapy.

“Just take $100 million that they’re putting into the new ‘Thrive City’ over there with the Warriors,” she said. “Why can’t they just give it to mental health?”