Category Archives: Financial Viability

Hospitals at a Crossroad: Reactive Navigation or Proactive Orchestration?

Posted on by • Posted in 2024 Election Issues, American Hospital Association (AHA), Bankruptcy, Board, Financial Stewardship, Financial Viability, Financially Distressed, Health System, Healthcare Reform, Hospital, Hospital Industry, Leadership, Leadership Investment, Leadership Problem Solving, Leadership Transformation, Leadership Vision, Medicaid, Medicare, Public Opinion, Public Perception, Utilization Trends • Leave a comment
Hospitals at a Crossroad: Reactive Navigation or Proactive Orchestration?

This is National Hospital week. It comes at a critical time for hospitals:

The U.S. economy is strong but growing numbers in the population face financial insecurity and economic despair. Increased out-of-pocket costs for food, fuel and housing (especially rent) have squeezed household budgets and contributed to increased medical debt—a problem in 41% of U.S. households today. Hospital bills are a factor.

The capital market for hospitals is tightening: interest rates for debt are increasing, private investments in healthcare services have slowed and valuations for key sectors—hospitals, home care, physician practices, et al—have dropped. It’s a buyer’s market for investors who hold record assets under management (AUM) but concerns about the harsh regulatory and competitive environment facing hospitals persist. Betting capital on hospitals is a tough call when other sectors appear less risky.

Utilization levels for hospital services have recovered from pandemic disruption and operating margins are above breakeven for more than half but medical inflation, insurer reimbursement, wage increases and Medicare payment cuts guarantee operating deficits for all. Complicating matters, regulators are keen to limit consolidation and force not-for-profits to justify their tax exemptions. Not a pretty picture.

And, despite all this, the public’s view of hospitals remains positive though tarnished by headlines like these about Steward Health’s bankruptcy filing last Monday:

The public is inclined to hold hospitals in high regard, at least for the time being. When asked how much trust and confidence they have in key institutions to “to develop a plan for the U.S. health system that maximizes what it has done well and corrects its major flaws,” consumers prefer for solutions physicians and hospitals over others but over half still have reservations:

A Great DealSomeNot Much/None
Health Insurers18%43%39%
Hospitals27%52%21%
Physicians32%53%15%
Federal Government14%42%44%
Retail Health Org’s21%51%28%

The American Hospital Association (AHA) is rightfully concerned that hospitals get fair treatment from regulators, adequate reimbursement from Medicare and Medicaid and protection against competitors that cherry-pick profits from the health system.

It can rightfully assert that declining operating margins in hospitals are symptoms of larger problems in the health system: flawed incentives, inadequate funding for preventive and primary care, the growing intensity of chronic diseases, medical inflation for wages, drugs, supplies and technologies, the dominance of ‘Big Insurance’ whose revenues have grown 12.1% annually since the pandemic and more. And it can correctly prove that annual hospital spending has slowed since the pandemic from 6.2% (2019) to 2.2% (2022) in stark contrast to prescription drugs (up from 4% to 8.4% and insurance costs (from -5.4% to +8.5%). Nonetheless, hospital costs, prices and spending are concerns to economists, regulators and elected officials.

National health spending data illustrate the conundrum for hospitals: relative to the overall CPI, healthcare prices and spending—especially outpatient hospital services– are increasing faster than prices and spending in other sectors and it’s getting attention: that’s problematic for hospitals at a time when 5 committees in Congress and 3 Cabinet level departments have their sights set on regulatory changes that are unwelcome to most hospitals.

My take:

The U.S. market for healthcare spending is growing—exceeding 5% per year through the next decade. With annual inflation targeted to 2.0% by the Fed and the GDP expected to grow 3.5-4.0% annually in the same period, something’s gotta’ give. Hospitals represent 30.4% of overall spending today (virtually unchanged for the past 5 years) and above 50% of total spending when their employed physicians and outside activities are included, so it’s obvious they’ll draw attention.

Today, however, most are consumed by near-term concerns– reimbursement issues with insurers, workforce adequacy and discontent, government mandates– and few have the luxury to look 10-20 years ahead.

I believe hospitals should play a vital role in orchestrating the health system’s future and the role they’ll play in it. Some will be specialty hubs. Some will operate without beds. Some will be regional. Some will close. And all will face increased demands from regulators, community leaders and consumers for affordable, convenient and effective whole-person care.

For most hospitals, a decision to invest and behave as if the future is a repeat of the past is a calculated risk. Others with less stake in community health and wellbeing and greater access to capital will seize this opportunity and, in the process, disable hospitals might play in the process.

Near-term reactive navigation vs. long-term proactive orchestration–that’s the crossroad in front of hospitals today. Hopefully, during National Hospital Week, it will get the attention it needs in every hospital board room and C suite.

PS: Last week, I wrote about the inclination of the 18 million college kids to protest against the healthcare status quo (“Is the Health System the Next Target for Campus Unrest?” The Keckley Report May 6, 2024 www.paulkeckley.com). This new survey caught my attention:

According to the Generation Lab’s survey of 1250 college students released last week, healthcare reform is a concern. When asked to choose 3 “issues most important to you” from its list of 13 issues, healthcare reform topped the list. The top 5:

  1. Health Reform (40%)
  2. Education Funding and access (38%)
  3. Economic fairness and opportunity (37%)
  4. Social justice and civil rights (36%)
  5. Climate change (35%)

If college kids today are tomorrow’s healthcare workforce and influencers to their peers, addressing the future of health system with their input seems shortsighted. Most hospital boards are comprised of older adults—community leaders, physicians, et al.

And most of the mechanisms hospitals use to assess their long-term sustainability is tethered to assumptions about an aging population and Medicare. 

College kids today are sending powerful messages about the society in which they aspire to be a part. They’re tech savvy, independent politically and increasingly spiritual but not religious. And the health system is on their radar.

30 health systems with strong finances

Posted on by • Posted in Credit Quality, Credit Ratings, Financial Performance, Financial Ratios, Financial Reporting, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Health System, Liquidity, Operating Expenses, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
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Here are 30 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.

Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.  

Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said. 

Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.    

Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said. 

Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said. 

Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position and dominant pediatric market position, Fitch said. 

Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said. 

Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.   

El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said. 

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

Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center). 

JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said. 

Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said. 

McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said. 

Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.  

Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said. 

Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels. 

Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.  

Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.  

Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said. 

Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said. 

Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said. 

Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January. 

Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said. 

Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.  

SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said. 

St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position and strong financial management, Fitch said. 

Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand and its location in an affluent and well insured market, Moody’s said.     

University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said. 

Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond. 

Steward’s bankruptcy documents reveal sprawling debt, planned hospital fire sale

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Since filing for bankruptcy Monday, Steward Health Care revealed it’s carrying more than $1 billion in debt and said its entire hospital portfolio is for sale.

At 3:30 a.m. Monday, Steward Health Care filed for Chapter 11 protections in U.S. Bankruptcy Court for the Southern District of Texas.

Eleven minutes later, Steward employees had an email waiting from their CEO, Ralph de la Torre. The CEO told his staff that industrywide economic headwinds and delays in Steward’s planned asset sales had forced the physician-owned health network to initiate restructuring proceedings.

“It is incumbent on all of us to ensure that this process has no impact on the quality care our patients, their families, and our communities can continue to receive at our hospitals,” de la Torre wrote in an email viewed by Healthcare Dive. “To the vast majority of you, operations will either not be different or improve.”

“To be clear, this is a restructuring under chapter 11; it is not a closure and it is not a liquidation,” he wrote.

The email was the first time employees had heard directly from Steward leadership about the company’s financial distress — though rumors and uncertainty about the operator had been festering for weeks, according to Marlishia Aho, regional communications director for the union 1199SEIU United Healthcare Workers East.

Leading up to Monday’s filing, state and federal lawmakers were increasingly worried about how a bankruptcy at the largest physician-led hospital operator in the country would impact access to care. 

Regulators in Massachusetts — where Steward operates eight hospitals — held closed-door strategy sessions to map out contingency in case of a bankruptcy, and workers staged rallies to protest possible hospital closures.

Steward provides care for more than 2 million patients each year across 31 hospitals and 400 facility locations, according to bankruptcy filings. The company also employs nearly 30,000 employees across its eight-state portfolio, including 4,500 primary and specialty care physicians. 

Steward’s first-day bankruptcy motions shed light on the operator’s future — and outlines its strategy for paying down its massive debt by selling assets. Here are the biggest takeaways.

Steward’s sprawling debt

Steward has earned a reputation for being cagey about its finances — to the dismay of Massachusetts Gov. Maura Healey, who accused the company of operating in a “black box” in a letter to its CEO earlier this year.

The operator has refused to file routine finances with Massachusetts regulators for years, citing a need to protect confidential business data. Even as the company shuttered hospitals this winter, regulators said Steward still dragged its feet on providing financial data, frustrating policymakers’ efforts to build out contingency plans.

“One of the good things about bankruptcy is that Steward and its CEO … will no longer be able to lie,” said Healey during a press conference Monday morning. “Transparency is really important here, and that’s why you know we’re looking forward to seeing what is in the various documents … We need clarity about debts and liabilities.”

In a slew of first-day motions, Steward now revealed it owes around $1.2 billion in total loan debts and about $6.6 billion in long-term lease payments.

Steward owes north of $600 million to 30 of its largest lenders, which include UnitedHealth-owned Change Healthcare, Philips North America LLC, Medline Industries, AYA Healthcare and Cerner.

The healthcare operator owes $289.8 million in unpaid compensation obligations, including $68 million to its own workers in unpaid employee salaries, $105.6 million in payments for physician services and $47.7 million owed to staffing agencies.

It also has approximately $979.4 million outstanding in trade obligations, of which approximately 70% are over 120 days past due.

The filings follow lawsuits from a multitude vendors — including staffing firms, consultants, medical equipment companies, electricians and marketing research companies — who said Steward reneged on payment obligations.

Steward’s interim funding tied to hospital sales

Though Steward had a consortium of six private lenders financing its asset-based loans this year, now only one lender is listed in bankruptcy filings as funding its debtor-in-possession financing: its landlord, Medical Properties Trust.

The change in vendors is notable, according to Laura Coordes, professor of law at the Sandra Day O’Connor College of Law at Arizona State University.

“Something went on to get these other lenders to drop out,” she said.

The landlord may be opting to fund Steward during bankruptcy proceedings in hopes of getting its own money back more expediently, according to Coordes.

Steward is MPT’s largest tenant and the healthcare network will owe MPT at least $6.9 billion in debt and lease obligations by 2041, according to the filings.

MPT agreed to finance $75 million debtor-in-possession financing and could fund up to $225 million more if Steward completes asset sale milestones on time.

During Tuesday morning’s first day hearing a representative for Steward told Judge Chris Lopez that all of Steward’s 31 hospitals are for sale. But to receive the $225 million from MPT, Steward has to hit aggressive sales milestones. It must host an auction for all non-Florida hospitals by June 28 and all Florida properties by July 30.

Since February, MPT executives have said there is strong interest from buyers in taking over Steward leases. However, Steward has yet to sell a hospital.

Experts have told Healthcare Dive they’re skeptical other operators would take on Steward’s leases at MPT’s current rental rates.

“Given the unaffordability of the leases and given that it hasn’t worked in the past, I do think that really material rent concessions are going to be needed to get this done,” said Rob Simone, sector head of real estate investment trusts at analyst firm Hedgeye.

Steward also signed a letter of intent to sell its physician group, Stewardship Health, to UnitedHealth. Although the deal was first announced in March, regulators have not yet begun reviewing the deal, according to David Seltz, executive director of the Massachusetts Health Policy Commission. Seltz said missing paperwork is delaying the review.

The Stewardship deal is not tied to further funding. A representative from UnitedHealth declined to comment on the pending deal and whether the bankruptcy proceeding would impact the sale.

Future of Steward

Employees have received conflicting messages about the future of Steward hospitals.

On one hand, both de la Torre and Massachusetts officials said Monday that Steward hospitals would remain open this week. However, Healey also emphasized that she wants Steward out of the state.

“Ultimately, [bankruptcy] is a step toward our goal of getting Steward out of Massachusetts,” Healey said during a press conference Monday.

Some Steward facilities may wind down during the bankruptcy proceedings, said Massachusetts Attorney General Andrea Campbell. Her office will oversee that process closely, and Steward will be required to provide licensing and notice obligations.

A healthcare worker at Steward’s Nashoba Valley Hospital told Healthcare Dive Monday she’s particularly concerned about the fate of her facility, which she says serves 14 communities but is small compared to some other hospitals in Steward’s portfolio. She doesn’t want regulators to forget about Nashoba.

“What I’m hoping for is that our state representatives and our local representatives really push to keep the hospital open,” she said. “But my concern is we get overlooked.”

State officials said they would continue monitoring Steward facilities to ensure quality care and push for the appointment of a patient care ombudsman to represent the interests of patients and employees during bankruptcy proceedings. Officials have already launched a website to offer resources about the bankruptcy process.

Still, employees are unsure of the path forward.

The Nashoba Valley Hospital employee told Healthcare Dive they’re conflicted about whether to stay at the hospital they’ve worked at for years or try to find a new position while they can.

“I’ve used the hospital since I moved out here. I’ve been living out in this area for like 25 years … I’ve brought my mother to this hospital,” the worker said. “It’s my hospital. It’s not just where I work. It’s what I use, and it’s vitally important to the community.”

Debt covenant violations tick up among nonprofit providers: report

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Since 2022, S&P Global Ratings has tracked an increase in violations of debt agreements as macro economic pressures and low operating margins challenge providers.

Dive Brief:

  • The number of nonprofit health systems violating their financial agreements with lenders or investors has increased since 2022 as providers struggle to meet debt obligations amid challenging operating conditions, according to a new report from credit agency S&P Global Ratings.
  • This year, nonprofits will continue to be at heightened risk of violating covenant agreements, or conditions of debt that are put in place by lenders. Recently, the most common violations among nonprofits have been debt service coverage — the amount of days-cash-on-hand to debt ratios — as the sector continues to weather high expenses and weak revenues.
  • Most nonprofits have recently received extra time to remedy finances in the form of waivers or forbearance agreements, but other systems have merged with more financially stable organizations to meet lending agreements, according to the report.

Dive Insight:

Financial covenant violations among nonprofits began to increase at the onset of the COVID-19 pandemic.

In the early stages of the pandemic, violations were often tied to one-time pressures on operating income, such as mandatory stoppages of services.

However, violations have since evolved and now reflect nonprofits’ struggles with ongoing labor shortages and inflationary pressures, according to the report.

Although some nonprofits have recovered financially after notching worst-ever operating performances in 2022, high expenses and labor challenges continue to plague hospitals, including a “labordemic” of both clinical and nonclinical staff that could persist through 2024 and beyond. 

Providers in the speculative rating category were more likely to have violated financial covenants over the past two years and accounted for 60% of violations in S&P’s rated universe.

43 health systems ranked by long-term debt

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Long-term debt has long been a staple in healthcare, but many hospitals and health systems are responding to the increasing cost of debt and debt service in the rising rates environment. 

Highly levered health systems are looking to sell hospitals, facilities or business lines to reduce their debt leverage and secure long-term sustainability, which creates significant growth opportunities for systems with balance sheets on a more solid financial footing. 

Forty-three health systems ranked by their long-term debt:

Note: This is not an exhaustive list. The following long-term debt figures are taken from each health system’s most recent financial report. 

1. HCA Healthcare (Nashville, Tenn.): $37.2 billion

2. CommonSpirit (Chicago): $15.3 billion

3. Tenet Healthcare (Dallas): $14.9 billion

4. Community Health Systems (Franklin, Tenn.): $11.5 billion

5. Kaiser Permanente (Oakland, Calif.): $10.6 billion

6. Providence (Renton, Wash.): $8.1 billion

7. Trinity Health (Livonia, Mich.): $6.8 billion

8. UPMC (Pittsburgh): $6.6 billion

9. Ascension (St. Louis): $6.1 billion

10. Mass General Brigham (Boston): $5.5 billion

11. Universal Health Services (King of Prussia, Pa.): $4.7 billion

12. Banner Health (Phoenix): $4.4 billion

13. Cleveland Clinic: $4.3 billion

14. Bon Secours Mercy Health (Cincinnati): $4.2 billion

15. Mayo Clinic (Rochester, Minn): $4.1 billion

16. Intermountain Health (Salt Lake City): $3.8 billion

17. Baylor Scott & White (Dallas): $3.8 billion

18. NYU Langone (New York City): $3.1 billion

19. Advocate Health (Charlotte, N.C.): $2.9 billion

20. IU Health (Indianapolis): $2.3 billion

21. Stanford Health Care (Palo Alto, Calif.): $2.3 billion

22. Orlando (Fla.) Health: $2.7 billion

23. Montefiore (New York City): $2 billion

24. BJC HealthCare (St. Louis): $1.9 billion

25. Christus Health (Irving, Texas): $1.9 billion

26. MedStar Health (Columbia, Md.): $1.8 billion

27. ProMedica (Toledo, Ohio): $1.8 billion

28. Northwestern Medicine (Chicago): $1.7 billion

29. Geisinger (Danville, Pa.): $1.7 billion

30. Allina Health (Minneapolis): $1.7 billion

31. OSF HealthCare (Peoria, Ill.): $1.7 billion

32. Norton Healthcare (Louisville, Ky.): $1.6 billion

33. Beth Israel Lahey Health (Cambridge, Mass.): $1.6 billion

34. SSM Health (St. Louis): $1.6 billion

35. Scripps Health (San Diego): $1.5 billion

36. Henry Ford Health (Detroit): $1.4 billion

37. Sanford Health (Sioux Falls, S.D.): $1.4 billion

38. Prisma Health (Greenville, S.C.): $1.4 billion

39. Allegheny Health Network (Pittsburgh): $910.5 million

40. HonorHealth (Scottsdale, Ariz.): $898.7 million

41. Sharp HealthCare (San Diego): $866.5 million

42. Premier Health (Dayton, Ohio): $850 million

43. Tufts Medicine (Boston): $782.3 million

23 health systems with strong finances

Posted on by • Posted in Financial Performance, Financial Ratios, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Health System, Hospital, Hospital Industry, Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance • Leave a comment
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Here are 23 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.

Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.  

Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said. 

Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.    

Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said. 

Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said. 

Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.   

El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said. 

JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said. 

Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said. 

McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said. 

Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.  

Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels. 

Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.  

Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.  

Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said. 

Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said. 

Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said. 

Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January. 

Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said. 

Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.  

SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said. 

University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said. 

Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond. 

Why a deep-red state could be on the verge of expanding Medicaid

Posted on by • Posted in ACA, Financial Strength, Financial Viability, Financially Distressed, Health Insurance Coverage Adequacy, Health Policy, Medicaid Expansion, Medicaid Work Requirements • Leave a comment

https://www.axios.com/2024/04/11/mississippi-medicaid-expansion-republicans-obamacare

Mississippi, one of the country’s poorest and least healthy states, could soon become the next to expand Medicaid.

Why it matters: 

It’s one of several GOP-dominated states that have seriously discussed Medicaid expansion this year, a sign that opposition to the Affordable Care Act coverage program may be softening among some holdouts 10 years after it became available.

  • A new House speaker who strongly backs expansion and growing fears that the state’s rural hospitals can’t survive without it have kept up momentum in Mississippi’s legislature this year.
  • As many as 200,000 low-income adults could gain coverage if lawmakers clinch a deal in the closing weeks of the Mississippi session.

State of play: 

Mississippi’s House and Senate this week began hashing out differences between two very different plans passed by each chamber.

  • The House bill is the traditional ACA expansion, extending coverage to adults earning 138% of the federal poverty level, or about $21,000.
  • The Senate’s version, which leaders have dubbed “lite” expansion, covers people earning up to the poverty line and wouldn’t bring in the more generous federal support available for full expansion.
  • Both plans include a work requirement, but only the House version would still allow expansion to take effect without it. The Biden administration opposes work rules, but former President Trump could revive them in a second term.

Zoom out: 

State lawmakers in Alabama and Georgia gave serious consideration to Medicaid expansion this year, though they ultimately dropped it. Kansas’ Gov. Laura Kelly, a Democrat, is trying again to expand Medicaid, but the GOP-run legislature remains opposed.

  • Shuttering rural hospitals and an acknowledgement that the ACA is unlikely to be repealed have made Republicans more willing to take a closer look at expansion, Politico reported earlier this year.
  • The fact that the extra federal funding from the ACA expansion could lift state budgets as pandemic aid dries up has also piqued states’ interest, said Joan Alker, executive director of the Georgetown University Center on Children and Families.

Zoom in: 

Mississippi’s expansion effort has advanced further than other states this year largely because new House Speaker Jason White has made it a priority. Lt. Gov. Delbert Hosemann, who presides over the Senate, has also pushed the issue.

  • “We see an unhealthy population that’s uncovered. And we see this as the best way” to insure them, White told Mississippi Today this week.
  • “I just think it’s time for us to realize that there’s not something else coming down the pipe.”

The state’s crumbling health infrastructure has also made expansion more urgent, said Democratic state Sen. Rod Hickman. More than 40% of the state’s 74 rural hospitals are at risk of closing, a report last summer found.

  • “The dire need of our hospital systems and the state finally recognizing that Medicaid expansion could assist in those issues is what has kind of brought that to the forefront,” he told Axios.

Yes, but: 

Republican Gov. Tate Reeves has reportedly pledged to oppose any Medicaid expansion deal that may emerge before the legislature adjourns in early May, so lawmakers would likely need a veto-proof majority to approve an expansion.

  • Austin Barbour, a Republican strategist who works in Mississippi politics, said he expects lawmakers will reach a deal.
  • But if they don’t, “I know this will be an issue that’ll pop right back up next session,” he said.

Financial distress increasingly prevalent in health system M&A deals

Posted on by • Posted in Financial Stewardship, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Market Consolidation, Market Trends, Mergers & Acquisitions, Operating Margin, Operating Margin Drivers, Operating Performance • Leave a comment

https://mailchi.mp/1e28b32fc32e/gist-weekly-february-9-2024?e=d1e747d2d8

This week’s graphic highlights data from Kaufman Hall’s recently released 2023 Hospital and Health System M&A Report on the current dynamics in health system mergers and acquisitions (M&A) activity.

After a slowdown during the pandemic, 2023 saw an uptick in M&A activity with 65 announced transactions, the most since 2020. Continuing the trend of the past two years, the number of announced “mega mergers,” in which the smaller party had at least $1B in annual revenue, represented more than a tenth of total announced transactions. 

However, the average size of mergers fell in 2023, as financial distress emerged as a key driver of M&A activity. The percent of mergers involving a financially distressed party spiked to nearly 28 percent in 2023, almost double the level seen in prior years. 

CARES Act funding had buoyed some health systems’ balance sheets through the pandemic, but with the end of federal aid, more systems needed to seek shelter through scale. 

With the median hospital operating margin still barely hitting two percent, we anticipate this heightened level M&A activity to continue in 2024 as health systems search for stronger partners that can help them stabilize financially. 

Cano Health files for bankruptcy

Posted on by • Posted in Bankruptcy, Disruption, Disruptive Technology, Financial Stewardship, Financial Viability, Financially Distressed, Innovation, Medicare Advantage, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Private Equity • Leave a comment

https://mailchi.mp/1e28b32fc32e/gist-weekly-february-9-2024?e=d1e747d2d8

On Sunday, Miami, FL-based Cano Health, a Medicare Advantage (MA)-focused primary care clinic operator, filed for bankruptcy protection to reorganize and convert around $1B of secured debt into new debt.

The company, which went public in 2020 via a SPAC deal worth over $4B, has now been delisted from the New York Stock Exchange. After posting a $270M loss in Q2 of 2023, Cano began laying off employees, divesting assets, and seeking a buyer. As of Q3 2023, it managed the care of over 300K members, including nearly 200K in Medicare capitation arrangements, at its 126 medical centers. 

The Gist: 

Like Babylon Health before it, another “tech-enabled” member of the early-COVID healthcare SPAC wave is facing hard times. While the low interest rate-fueled trend of splashy public offerings was not limited to healthcare, several prominent primary care innovators and “insurtechs” from this wave have struggled, adding further evidence to the adages that healthcare is both hard and difficult to disrupt.

Given that Cano sold its senior-focused clinics in Texas and Nevada to Humana’s CenterWell last fall, Cano may draw interest from other organizations looking to expand their MA footprints.