Here is a summary of recent credit rating downgrades, going back to the last Becker’s roundup on Jan. 17.
Operating concerns and a bleak financial outlook for some resulted in the following changes:
Geisinger Health System (Danville, Pa.): Moody’s Investors Service downgraded Geisinger Health System’s outstanding bonds from “A1” to “A2” Feb. 13 amid expectations of continued cash flow weakness.
The outlook for the system, which has about $1.3 billion in debt, is stable.
Marshfield (Wis.) Clinic Health System: The system suffered a credit downgrade because of recent operating losses and amid expectations of no immediate financial improvement.
The S&P Global move Feb. 7 to downgrade the system to “BBB+” from “A-” follows a similar move from Fitch Jan. 18.
Marshfield signed a memorandum of understanding with Duluth, Minn.-based Essentia Health to discuss a potential merger Oct. 12 that would include 25 hospitals.
Tower Health (West Reading, Pa.): Troubled Tower Health, which is currently undergoing a strategic review and selling off several assets, suffered a rating downgrade on its bonds, S&P Global reported Feb. 6, adding that the outlook is negative.
“The downgrade reflects Tower Health’s significant ongoing operating losses that are expected to continue in fiscal 2023, and a steep decline in unrestricted reserves to a level that we view as highly vulnerable,” said S&P Global Ratings credit analyst Anne Cosgrove.
Fairview Health (Minneapolis): Moody’s Investors Service downgraded the revenue bond ratings of Fairview Health from “A3” to “Baa1.”
The downgrade reflects Moody’s projection that weak operating performance will be challenging to overcome due to increased labor costs and lower inpatient volume. Inflation and annual transfers to the University of Minnesota in Minneapolis will also hamper margins, Moody’s said.
Here are four health systems that recently had their credit rating upgraded by Fitch Ratings, Moody’s Investors Service or S&P Global Ratings:
1. Cooper University Health Care received upgrades from both S&P and Moody’s. S&P upgraded the Camden, N.J.-based system from “BBB+” to “A-,” praising Cooper for its focus on cost containment, revenue improvement, expanding market share and developing key services to gain more tertiary referrals and limit outpatient migration to Philadelphia academic medical centers.
Moody’s raised the system’s bond ratings from “Baa1” to “A3” and said it expects Cooper’s operating margins will be maintained through execution of its performance improvement plan and strong growth in key service lines.
2. Loma Linda (Calif.) University Medical Center’s rating was raised to “BB+” from “BB” by Fitch. “The upgrade … incorporates LLUMC’s major new hospital, which is now open, and the system has been operating in their new environment for more than one year, removing a considerable risk factor,” Fitch said in a report.
3. Mercy Health’s credit rating was upgraded from “A-” to “A” by Fitch. The rating agency said the Rockford, Ill.-based system’s operating profile is expected to remain strong in the longer term.
4. Orlando (Fla.) Health’s rating was upgraded to “AA-” from “A+” by Fitch. The ratings agency said in a report the bump “reflects the continued strength of OHI’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market.”
Franklin, Tenn.-based Community Health Systems, one of the largest for-profit health systems in the country,reported $179 million net income in 2022, a 51.4 percent drop from the $368 million net income reported the prior year.
The drop was driven by a decline in net operating revenues, fewer inpatient admissions and what CHS termed “unfavorable changes” in payer mix.
Total operating costs and expenses for the year ended Dec. 31 were $11.4 billion, up from $11 billion in 2021. Net operating revenues were $12.2 billion in 2022, down slightly from $12.4 billion the prior year.
Net income in the final three months of the year totaled $446 million compared with $223 million in the same period in 2021.
“We were pleased with our progress during the final quarter of the year, including solid volume growth in admissions, adjusted admissions and surgeries,” CEO Tim Hingtgen said in a statement. “We also significantly reduced contract labor from its peak in early 2022 while improving overall employee recruitment and retention levels.”
CHS, which owns or leases 79 affiliated hospitals with approximately 13,000 beds and operates more than 1,000 sites of care, also released guidance for 2023, predicting annual revenues of between $12.2 billion and $12.6 billion. Such figures compare with $12.2 billion in 2022.
The system, which is also predicting a net loss in 2023 between 0.05 and 0.65 a share, recorded long-term debt of $11.6 billion as of Dec. 31 compared with $12.1 billion at the same time in 2021.
President Joe Biden last night highlighted several healthcare priorities during his State of the Union address, including efforts to reduce drug costs, a universal cap on insulin prices, healthcare coverage, and more.
COVID-19
In his speech, Biden acknowledged the progress the country has made with COVID-19 over the last few years.
“Two years ago, COVID had shut down our businesses, closed our schools, and robbed us of so much,” he said. “Today, COVID no longer controls our lives.”
Although Biden noted that the COVID-19 public health emergency (PHE) will come to an end soon, he said the country should remain vigilant and called for more funds from Congress to “monitor dozens of variants and support new vaccines and treatments.”
The Inflation Reduction Act
Biden highlighted several provisions of the Inflation Reduction Act (IRA), which passed last year, that aim to reduce healthcare costs for millions of Americans.
“You know, we pay more for prescription drugs than any major country on earth,” he said. “Big Pharma has been unfairly charging people hundreds of dollars — and making record profits.”
Under the IRA, Medicare is now allowed to negotiate the prices of certain prescription drugs, and out-of-pocket drug costs for Medicare beneficiaries are capped at $2,000 per year. Insulin costs for Medicare beneficiaries are also capped at $35 a month.
“Bringing down prescription drug costs doesn’t just save seniors money,” Biden said. “It will cut the federal deficit, saving tax payers hundreds of billions of dollars on the prescription drugs the government buys for Medicare.”
Caps on insulin costs for all Americans
Although the IRA limits costs for seniors on Medicare, Biden called for the policy to be made universal for all Americans. According to a 2022 study, over 1.3 million Americans skip, delay purchasing, or ration their insulin supply due to costs.
“[T]here are millions of other Americans who are not on Medicare, including 200,000 young people with Type I diabetes who need insulin to save their lives,” Biden said. “… Let’s cap the cost of insulin at $35 a month for every American who needs it.”
With the end of the COVID-19 PHE, HHS estimates that around 15 million people will lose health benefits as states begin the process to redetermine eligibility.
The opioid crisis
Biden also addressed the ongoing opioid crisis in the United States and noted the impact of fentanyl, in particular.
“Fentanyl is killing more than 70,000 Americans a year,” he said. “Let’s launch a major surge to stop fentanyl production, sale, and trafficking, with more drug detection machines to inspect cargo and stop pills and powder at the border.”
He also highlighted efforts by to expand access to effective opioid treatments. According to a White House fact sheet, some initiatives include expanding access to naloxone and other harm reduction interventions at public health departments, removing barriers to prescribing treatments for opioid addiction, and allowing buprenorphine and methadone to be prescribed through telehealth.
Access to abortion
In his speech, Biden called on Congress to “restore” abortion rights after the U.S. Supreme Court overturned Roe v. Wade last year.
“The Vice President and I are doing everything we can to protect access to reproductive healthcare and safeguard patient privacy. But already, more than a dozen states are enforcing extreme abortion bans,” Biden said.
He also added that he will veto a national abortion ban if it happens to pass through Congress.
Progress on cancer
Biden also highlighted the Cancer Moonshot, an initiative launched last year aimed at advancing cancer treatment and prevention.
“Our goal is to cut the cancer death rate by at least 50% over the next 25 years,” Biden said. “Turn more cancers from death sentences into treatable diseases. And provide more support for patients and families.”
According to a White House fact sheet, the Cancer Moonshot has created almost 30 new federal programs, policies, and resources to help increase screening rates, reduce preventable cancers, support patients and caregivers and more.
“For the lives we can save and for the lives we have lost, let this be a truly American moment that rallies the country and the world together and proves that we can do big things,” Biden said. “… Let’s end cancer as we know it and cure some cancers once and for all.”
Healthcare coverage
Biden commended the fact that “more American have health insurance now than ever in history,” noting that 16 million people signed up for plans in the Affordable Care Act marketplace this past enrollment period.
In addition, Biden noted that a law he signed last year helped millions of Americans save $800 a year on their health insurance premiums. Currently, this benefit will only run through 2025, but Biden said that we should “make those savings permanent, and expand coverage to those left off Medicaid.”
Advisory Board’s take
Our questions about the Medicaid cliff
President Biden extolled economic optimism in the State of the Union address, touting the lowest unemployment rate in five decades. With job creation on the rise following the incredible job losses at the beginning of the COVID-19 pandemic, there is still a question of whether the economy will continue to work for those who face losing Medicaid coverage at some point in the next year.
The public health emergency (PHE) is scheduled to end on May 11. During the PHE, millions of Americans were forced into Medicaid enrollment because of job losses. Federal legislation prevented those new enrollees from losing medical insurance. As a result, the percentage of uninsured Americans remained around 8%. The safety net worked.
Starting April 1, state Medicaid plans will begin to end coverage for those who are no longer eligible. We call that the Medicaid Cliff, although operationally, it will look more like a landslide. Currently, state Medicaid regulators and health plans are still trying to figure out exactly how to manage the administrative burden of processing millions of financial eligibility records. The likely outcome is that Medicaid rolls will decrease exponentially over the course of six months to a year as eligibility is redetermined on a rolling basis.
In the marketplace, there is a false presumption that all 15 million Medicaid members will seamlessly transition to commercial or exchange health plans. However, families with a single head of household, women with children under the age of six, and families in both very rural and impoverished urban areas will be less likely to have access to commercial insurance or be able to afford federal exchange plans. Low unemployment and higher wages could put these families in the position of making too much to qualify for Medicaid, but still not making enough to afford the health plans offered by their employers (if their employer offers health insurance). Even with the expansion of Medicaid and exchange subsidies, it, is possible that the rate of uninsured families could rise.
For providers, this means the payer mix in their market will likely not return to the pre-pandemic levels. For managed care organizations with state Medicaid contracts, a loss of members means a loss of revenue. A loss of Medicaid revenue could have a negative impact on programs built to address health equity and social determinants of health (SDOH), which will ultimately impact public health indicators.
For those of us who have worked in the public health and Medicaid space, the pandemic exposed the cracks in the healthcare ecosystem to a broader audience. Discussions regarding how to address SDOH, health equity, and behavioral health gaps are now critical, commonplace components of strategic business planning for all stakeholders across our industry’s infrastructure.
But what happens when Medicaid enrollment drops, and revenues decrease? Will these discussions creep back to the “nice to have” back burners of strategic plans?
Given the economic situation most hospitals face today, it was only a matter of time before we started to hear comments like we heard recently from a system CEO.
“We’ve got to pump the brakes on physician employment this year,” she said. “This arms race with Optum and PE firms has gotten out of control, and we’re looking at almost $300K per year of loss per employed doc.”
Of course, that system (like most) has been calling that loss a “subsidy” or an “investment” for the past several years, justified by the ability to pursue an integrated model of care and to grow the overall system book of business.
But with non-hospital competitors unfettered by the requirement to pay “fair market value” for physicians, the bidding war for doctors has become unsustainable for many hospitals. Around half of physicians are now employed by hospitals, with many more employed in other corporate settings.
There’s a growing sense that the pendulum has swung too far in the direction of employment, and now the phrase “stopping the bleed”—commonplace in the post-PhyCor days of the early 2000s—has begun to ring out again.
One challenge: finding ways to talk openly about “pumping the brakes” with the board, given that most systems have key physician stakeholders as part of their governance structure. Twice in the last month we’ve had CEOs ask us about reconfiguring their boards so that there are fewer doctors involved in governance—a sharp about-face from the “integration” narrative of just a few years ago.
It’s a tricky balance to strike. We recently heard a fascinating statistic that we’re working to verify: a third of all hospital CEO turnover in the last year was driven by votes of no-confidence by the medical staff. True or not, there’s no doubt that running afoul of physicians can be a career-limiting move for hospital executives, so if we’re about to enter an era of dialing back physician employment strategies, it’ll be fascinating to see how the conversations unfold. We’ll continue to keep an eye on this shift in direction and would love to know what you’re hearing as well, and to discuss how we might be of assistance in navigating what are sure to be a series of difficult choices.
Last week the Biden Administration announced that the federal COVID public health emergency (PHE) will expire on May 11. While the recent Omnibus law will lessen the impact, the graphic above highlights several important provisions for providers which are currently set to end with the PHE.
The Centers for Medicare and Medicaid Services (CMS) will no longer provide hospitals with a 20 percent inpatient payment boost for treating traditional Medicare patients hospitalized with COVID. The cost of COVID testing and treatments will shift from the federal government to consumers as private and public insurers can charge for tests and care, while the uninsured will bear the full costs of COVID vaccines and treatment.
Medicare’s current flexibilities around skilled nursing facility (SNF) admissions will end, as it reinstates the three-day prior hospitalization rule for SNF transfers, and ceases paying for SNF stays beyond 100 days.
The end of the PHE also means that providers willno longer be able to prescribe controlled substances virtually, without an initial in-person evaluation. This is especially significant given the volume of mental health and substance abuse treatment that shifted to telehealth across the course of the pandemic.
While the Drug Enforcement Agency has been working on regulations to address this, a proposed rule has not yet been released. Together, these changes amount tolower payments for health systems, COVID cost exposure for patients, and fewer flexibilities for providers managing care, even as thousands of patients are still being hospitalized with COVID each week.
With input from stakeholders across the industry, Modern Healthcare outlines six challenges health care is likely to face in 2023—and what leaders can do about them.
1. Financial difficulties
In 2023, health systems will likely continue to face financial difficulties due to ongoing staffing problems, reduced patient volumes, and rising inflation.
According to Tina Wheeler, U.S. health care leader at Deloitte, hospitals can expect wage growth to continue to increase even as they try to contain labor costs. They can also expect expenses, including for supplies and pharmaceuticals, to remain elevated.
Health systems are also no longer able to rely on federal Covid-19 relief funding to offset some of these rising costs. Cuts to Medicare reimbursement rates could also negatively impact revenue.
“You’re going to have all these forces that are counterproductive that you’re going to have to navigate,” Wheeler said.
In addition, Erik Swanson, SVP of data and analytics at Kaufman Hall, said the continued shift to outpatient care will likely affect hospitals’ profit margins.
“The reality is … those sites of care in many cases tend to be lower-cost ways of delivering care, so ultimately it could be beneficial to health systems as a whole, but only for those systems that are able to offer those services and have that footprint,” he said.
2. Health system mergers
Although hospital transactions have slowed in the last few years, market watchers say mergers are expected to rebound as health systems aim to spread their growing expenses over larger organizations and increase their bargaining leverage with insurers.
“There is going to be some organizational soul-searching for some health systems that might force them to affiliate, even though they prefer not to,” said Patrick Cross, a partner at Faegre Drinker Biddle & Reath. “Health systems are soliciting partners, not because they are on the verge of bankruptcy, but because they are looking at their crystal ball and not seeing an easy road ahead.”
Financial challenges may also lead more physician practices to join health systems, private-equity groups, larger practices, or insurance companies.
“Many independent physicians are really struggling with their ability to maintain their independence,” said Joshua Kaye, chair of U.S. health care practice at DLA Piper. “There will be a fair amount of deal activity. The question will be more about the size and specialty of the practices that will be part of the next consolidation wave.”
3. Recruiting and retaining staff
According to data from Fitch Ratings, health care job openings reached an all-time high of 9.2% in September 2022—more than double the average rate of 4.2% between 2010 and 2019. With this trend likely to continue, organizations will need to find effective ways to recruit and retain workers.
Currently, some organizations are upgrading their processes and technology to hire people more quickly. They are also creating service-level agreements between recruiting and hiring teams to ensure interviews are scheduled within 48 hours or decisions are made within 24 hours.
Eric Burch, executive principal of operations and workforce services at Vizient, also predicted that there will be a continued need for contract labors, so health systems will need to consider travel nurses in their staffing plans.
“It’s really important to approach contract labor vendors as a strategic partner,” Burch said. “So when you need the staff, it’s a partnership and they’re able to help you get to your goals, versus suddenly reaching out to them and they don’t know your needs when you’re in crisis.”
When it comes to retention, Tochi Iroku-Malize, president of the American Academy of Family Physicians (AAFP), said health systems are adequately compensated for their work and have enough staff to alleviate potential burnout.
AAFP also supports legislation to streamline prior authorization in the Medicare Advantage program and avoid additional cuts to Medicare payments, which will help physicians provide care to patients with less stress.
4. Payer-provider contract disputes
A potential recession, along with the ensuing job cuts that typically follow, would limit insurers’ commercial business, which is their most profitable product line. Instead, many people who lose their jobs will likely sign up for Medicaid plans, which is much less profitable.
Because of increased labor, supply, and infrastructure costs, Brad Ellis, senior director at Fitch Ratings, said providers could pressure insurers into increasing the amount they pay for services. This will lead insurers to passing these increased costs onto members’ premiums.
Currently, Ellis said insurers are keeping an eye on how legislators finalize rules to implement the No Surprise Act’s independent resolution process. Regulators will also begin issuing fines for payers who are not in compliance with the law’s price transparency requirement.
5. Investment in digital health
Much like 2022, investment in digital health is likely to remain strong but subdued in 2023.
“You’ll continue to see layoffs, and startup funding is going to be hard to come by,” said Russell Glass, CEO of Headspace Health.
However, investors and health care leaders say they expect a strong market for digital health technology, such as tools for revenue cycle management and hospital-at-home programs.
According to Julian Pham, founding and managing partner at Third Culture Capital, he expects corporations such as CVS Health to continue to invest in health tech companies and for there to be more digital health mergers and acquisitions overall.
In addition, he predicted that investors, pharmaceutical companies, and insurers will show more interest in digital therapeutics, which are software applications prescribed by clinicians.
“As a physician, I’ve always dreamed of a future where I could prescribe an app,” Pham said. “Is it the right time? Time will tell. A lot needs to happen in digital therapeutics and it’s going to be hard.”
6. Health equity efforts
This year, CMS will continue rolling out new health equity initiatives and quality measurements for providers and insurers who serve marketplace, Medicare, and Medicaid beneficiaries. Some new quality measures include maternal health, opioid related adverse events, and social need/risk factor screenings.
CMS, the Joint Commission, and the National Committee for Quality Assurance are also partnering together to establish standards for health equity and data collection.
In addition, HHS is slated to restore a rule under the Affordable Care Act that prohibits discrimination based on a person’s gender identity or sexual orientation. According to experts, this rule may conflict with recently passed state laws that ban gender-affirming care for minors.
“It’s something that’s going to bear out in the courts and will likely lack clarity. We’ll see differences in what different courts decide,” said Lindsey Dawson, associate director of HIV policy and director of LGBTQ health policy at the Kaiser Family Foundation. “The Supreme Court acknowledged that there was this tension. So it’s an important place to watch and understand better moving forward.”
Segundo, Calif.-based Pipeline Health, now a five-hospital system, exited bankruptcy Feb. 7
Former CFO Robert Allen has replaced Andrei Soran as CEO. Mr. Allen previously served as group CEO for CHA Hollywood Presbyterian Medical Center in Los Angeles. He also held CFO positions at San Francisco-based Dignity Health and Keck Medical Center of USC, Valley Presbyterian Hospital and Sherman Oaks Hospital and Health Center, all in Los Angeles.
Four other leaders have also been appointed to executive positions:
Steve Blake has been promoted to CFO
Vince Green, MD, has returned to Pipeline as chief medical officer
Patrick Rafferty assumed a new role as COO for Pipeline’s Los Angeles market while also serving as CEO for Coast Plaza Hospital in Norwalk, Calif.
Elaine Stephenson has been promoted to vice president for human resources
Pipeline filed for Chapter 11 bankruptcy Oct. 2, and its plan to emerge was confirmed Jan. 13. Over the last few months, the system has worked through a restructuring process that included selling two Chicago hospitals, evaluating vendor contracts, creating a business plan with realistic financial goals and securing financial agreements with key stakeholders. It now owns four hospitals in the Los Anegeles area and one in Dallas.
In a memo sent Feb. 7 to employees and affiliated physicians, Mr. Allen wrote, “Hospitals across the country face similar financial challenges. You should take great pride in knowing that our company stands on solid footing now with a clear path forward. And I am proud — and grateful — that our employees and physicians have stayed with us, keeping their focus on delivering quality patient care throughout this period of uncertainty.”
Pipeline’s path forward includes a renewed commitment to quality care and an improved workforce strategy, according to Mr. Allen.
“That means providing the right care in the right place at the right time to every patient who comes to us and ensuring timely patient discharges,” he said in a Feb. 7 news release. “We also will focus on enhanced workforce management to care for the patients we serve and to enhance our critical relationships with our employees.”
On the eve of a scheduled House vote on a bill that would immediately end the federal public health emergency (PHE), the Biden administration announced Monday that both the PHE and the COVID national emergency will end on May 11. With the Omnibus legislation passed at the end of December, Congress already decoupled several key provisions once tied to the PHE, including setting April 1st as the date on which states can resume Medicaid redeterminations, and extending key Medicare telehealth flexibilities.
However, once the PHE ends,various other provider flexibilities will expire: hospitals will no longer receive boosted Medicare payments for COVID admissions, and the cost of COVID tests, vaccines, and treatments will shift from the government to insurers and consumers.
The Gist: While previous Congressional action addressed some pressing provider concerns, the end of the PHE will still bring big changes.
The healthcare system will soon be responsible for covering, testing, and treating COVID like any other illness, even as the virus continues to take the lives of hundreds of Americans each day.
Many patients may soon find it difficult to access affordable COVID care, and many health systems will see an increase in uncompensated care, exacerbating current margin challenges. COVID remains an urgent public health concern in need of a coordinated strategy.
Published last weekend in the New York Times Magazine, this wide-ranging article weaves the experiences of patients and providers within hospital-at-home programs into a broader examination of what hospital-level care at home could mean for the future of healthcare.
While the hospital-at-home movement is still small, provider interest grew sharply during the pandemic, and gave rise to Medicare’s Acute Hospital Care at Home waiver, providing 260 hospitals Medicare payment for the service. The article lays out the challenges hospital-at-home programs are still working to overcome, ranging from equity (rural hospitals have seen far less uptake of the Medicare waiver), labor models (National Nurses United, the largest union of registered nurses, opposes them), to the upfront investments required to stand up a program.
The Gist: Like telemedicine, hospital-at-home programs lingered on the fringes of care delivery before the federal COVID response delivered both the regulatory flexibility and the reimbursement needed to generate provider interest—and turbocharged start-ups providing support in implementing the model.
Despite growth in health system and payer interest, hospital-at-home programs are still not deployed widely, or at scale. Many physicians and patients either don’t understand or accept it as an alternative to inpatient hospitalization, despite the fact that patients and families who participate in the service largely report a high level of satisfaction.
But as the article points out, thebarriers to scaling hospital-at-home pilots—staffing models, quality control, and appropriate reimbursement—are ultimately financial.
HENRY KOTULA 