Category Archives: Hospital

Financial Reserves as a Buffer for Disruptions in Operation and Investment Income

Posted on by • Posted in Credit Management, Credit Quality, Credit Ratings, Days Cash on Hand, Debt Capacity, Financial Performance, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Nonoperating Income, Nonoperating Income Dependency, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment

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For the first time in recent history, we saw all three
functions of the not-for-profit healthcare system’s
financial structure suffer significant and sustained
dislocation over the course of the year 2022
(Figure above).

The headwinds disrupting these functions
are carrying over into 2023, and it is uncertain how
long they will continue to erode the operating and
financial performance of not-for-profit hospitals
and health systems.


Ÿ The Operating Function is challenged by elevated
expenses, uncertain recovery of service volumes, and
an escalating and diversified competitive environment.


Ÿ The Finance Function is challenged by a more
difficult credit environment (all three rating agencies

now have a negative perspective on the not-forprofit healthcare sector), rising rates for debt, and
a diminished investor appetite for new healthcare
debt issuance. Total healthcare debt issuance in
2022 was $28 billion, down sharply from a trailing
two-year average of $46 billion.


Ÿ The Investment Function is challenged by volatility and
heightened risk in markets concerned with the Federal
Reserve’s tightening of monetary policy and the
prospect of a recession. The S&P 500—a major stock
index—was down almost 20% in 2022. Investments
had served as a “resiliency anchor” during the first
two years of the pandemic; their ability to continue
to serve that function is now in question.

A significant factor in Operating Function challenges is
labor: both increases in the cost of labor and staffing
shortages that are forcing many organizations to
run at less than full capacity. In Kaufman Hall’s 2022
State of Healthcare Performance Improvement Survey, for
example, 67% of respondents had seen year-over-year
increases of more than 10% for clinical staff wages,
and 66% reported that they had run their facilities at
less-than-full capacity because of staffing shortages.


These are long-term challenges,

dependent in part on
increasing the pipeline of new talent entering healthcare
professions, and they will not be quickly resolved.
Recovery of returns from the Investment Function
is similarly uncertain. Ideally, not-for-profit health
systems can maintain a one-way flow of funds into
the Investment Function, continuing to build the
basis that generates returns. Organizations must now
contemplate flows in the other direction to access

funds needed to cover operating losses, which in
many cases would involve selling invested assets at a
loss in a down market and reducing the basis available
to generate returns when markets recover.


The current situation demonstrates why financial
reserves are so important:

many not-for-profit
hospitals and health systems will have to rely on
them to cover losses until they can reach a point
where operations and markets have stabilized, or
they have been able to adjust their business to a
new, lower margin environment. As noted above,
relief funding and the MAAP program helped bolster
financial reserves after the initial shock of the
pandemic. As the impact of relief funding wanes
and organizations repay remaining balances under
the MAAP program, Days Cash on Hand has begun
to shrink, and the need to cover operating losses is
hastening this decline. From its highest

point in 2021, Days Cash on Hand had decreased, as
of September 2022, by:


Ÿ 29% at the 75th percentile, declining from 302 to 216
DCOH (a drop of 86 days)


Ÿ 28% at the 50th percentile, declining from 202 to 147
DCOH (a drop of 55 days)


Ÿ 49% at the 25th percentile, declining from 67 to 34
DCOH (a drop of 33 days)


Financial reserves are playing the role
for which they were intended; the only
question is whether enough not-for-profit
hospitals and health systems have built
sufficient reserves to carry them through
what is likely to be a protracted period of
recovery from the pandemic.

KEY TAKEAWAYS

All three functions of the not-for-profit healthcare
system’s financial structure—operations, finance,
and investments—suffered significant and
sustained dislocation over the course of 2022.


Ÿ These headwinds will continue to challenge not-forprofit

hospitals and health systems well into 2023.

Ÿ Days Cash on Hand is showing a steady decline, as
the impact of relief funding recedes and the need
to cover operating losses persists.


Ÿ Financial reserves are playing a critical role in
covering operating losses as hospitals and health
systems struggle to stabilize their operational and
financial performance.

Conclusion

Not-for-profit hospitals and health systems serve
many community needs. They provide patients
access to healthcare when and where they need it.
They invest in new technologies and treatments that
offer patients and their families lifesaving advances
in care. They offer career opportunities to a broad
range of highly skilled professionals, supporting the
economic health of the communities they serve.


These services and investments are expensive and
cannot be covered solely by the revenue received
from providing care to patients.


Strong financial reserves are the foundation of good
financial stewardship for not-for-profit hospitals and
health systems.

Financial reserves help fund needed
investments in facilities and technology, improve an
organization’s debt capacity, enable better access to
capital at more affordable interest rates, and provide a
critical resource to meet expenses when organizations
need to bridge periods of operational disruption or
financial distress.
Many hospitals and health systems today are relying
on the strength of their reserves to navigate a difficult

environment; without these reserves, they would
not be able to meet their expenses and would be at
risk of closure.

Financial reserves, in other words,
are serving the very purpose for which they are
intended—ensuring that hospitals and health systems
can continue to serve their communities in the face of
challenging operational and financial headwinds.

When these headwinds have subsided, rebuilding these
reserves should be a top priority to ensure that our
not-for-profit hospitals and health systems can remain
a vital resource for the communities they serve.

Financial Reserves and Credit Management

Posted on by • Posted in Credit Management, Credit Quality, Credit Ratings, Days Cash on Hand, Debt Capacity, Debt Issuance, Debt Service, Debt Service Covenants, Debt Service Coverage Ratio, Financial Reserves, General Obligation Bonds, Health System, Hospital, Hospital Industry, Municipal Debt, Revenue-backed Municipal Bonds • Leave a comment

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For large capital projects—construction of a new cancer
treatment center, for example, or replacement of an
aging facility—issuance of municipal debt is one of the
most affordable ways for not-for-profit hospitals and
health system to finance the project.

The affordability of that debt is, however, partly contingent on the
organization’s ability to maintain a strong credit rating,
and financial reserves—again measured as Days Cash on
Hand—are a significant component of that credit rating.


There are two basic forms of municipal debt:


Ÿ General obligation bonds are backed by the full
taxing power of the issuing municipal authority and
are considered relatively low risk. Hospitals that are
owned by a city or county can be funded by general
obligation bonds, although there are practical
limitations on their ability to issue these bonds,
including in many instances the need to obtain voter
or county commissioner approval. Organizations

without municipal ownership—including most
not-for-profit hospitals and health systems—
cannot issue general obligation bonds.


Ÿ Revenue-backed municipal bonds are backed by
the ability of the organization borrowing the debt
to meet its obligation to make principal and interest
payments through the revenue it generates over the
life of the bond. Because revenues can be disrupted
by any range of factors, revenue-backed bonds are
higher risk for investors. Most healthcare bonds
are revenue-backed municipal bonds.


When determining whether to invest in revenue-backed
municipal healthcare bonds, investors will look to the
credit rating of the hospital or health system that is
borrowing the debt. Credit ratings—issued by one or
more of the three major credit rating agencies (Fitch
Ratings, Moody’s Investors Service, and S&P Global
Ratings)—provide an assessment of the probability

that the hospital or health system will be able to meet
the terms of the debt obligation. These ratings are
tiered. A credit rating in the AA tier is better than a credit
rating in the A tier, which is better than a rating in the
BBB tier. Ratings below the BBB tier are considered sub-investment grade.

Organizations with a sub-investment
grade rating can still access various forms of debt,
but the amount of debt they can access generally will
be lower, the cost of the debt will be higher, and the
covenants that lenders require will be more stringent
than for investment-grade rated organizations.


Financial reserves and credit ratings


Days Cash on Hand is one of the most important factors
credit rating agencies use because it is an indicator
of how long the rated organization could withstand
serious disruption to its operations and cashflow.
The rating agencies issue median values for the various
metrics they use to determine credit ratings. Median

values for Days Cash on Hand increased significantly
across most rating categories for all three agencies
in 2020 and 2021; this reflects the temporary inflow
of pandemic relief funding through, for example,
the Coronavirus Aid, Relief, and Economic Security
(CARES) Act.


We anticipate these medians will move
closer to pre-pandemic levels as relief funds are
exhausted and hospitals repay remaining balances
on Medicare’s COVID-19 Accelerated and Advanced
Payment (MAAP) program funds. But even before
the pandemic, organizations in 2019 had a median
Days Cash on Hand of 276 to 289 days at the AA level,
173 to 219 days at the A level, and 140 to 163 days at
the BBB level.


In other words, the Days Cash on Hand
benchmark for organizations seeking to maintain an
investment-grade rating would be well over 100 Days
Cash on Hand, and well over 200 Days Cash on Hand for
organizations seeking to achieve a higher rating level.
Again, these reserves are proportionate to the operating
expenses of the individual hospital or health system.

Impact of credit ratings on access to capital


Organizations that can achieve a higher rating can
also borrow money at more affordable interest
rates. Figure 3 shows average interest rates for
municipal bonds across a range of maturities as of
mid-December 2022 (maturity is the term in years
for repayment of the bond at the time the bond is
issued). Lower-risk general obligation municipal bonds
are shown as the baseline, with lines for AA, A, and
BBB rated healthcare revenue-backed bonds above
it. As a reminder, most hospitals and health systems
cannot borrow money using general obligation bonds;
instead, they use higher-risk revenue-backed bonds.
Because revenue-backed bonds are a higher risk for
investors than tax-based general obligation bonds,

even hospitals and health systems with a strong
AA credit rating will pay a higher interest rate than
would a city or county that could back repayment of
the bond with tax revenues (see the line for AA rated
Healthcare Revenue Bonds compared to the line
for AAA rated General Obligation bonds). But there
is also a significant gap between the interest rate a
hospital with an AA credit rating would pay compared
to the interest rate available to a hospital with a lower
BBB rating. Here, the difference is approximately
three-fourths of a full percentage point. When the
amount borrowed for a major new hospital project
can run into the hundreds of millions of dollars,
that difference represents significant savings for
organizations with a higher credit rating.

Financial reserves and debt capacity


Financial reserves and the funds they generate—
including investment income—also help define an
organization’s debt capacity: essentially, the amount of
debt an organization can assume without jeopardizing
its current credit rating. There are two key ratios here:


Ÿ The first is total unrestricted cash and investments
to debt. In general, the more favorable that ratio is,
the more latitude a hospital or health system has to
take on additional debt, especially if the organization
is toward the middle to top end of its rating tier.

Ÿ The second is the debt service coverage ratio,
which measures the organization’s ability to
make principal and interest payments with funds
derived from both operating and non-operating
(e.g., investment income) activity. A higher ratio
here means the organization has more funds
available to service debt.


The ability to assume additional debt is an important
safety valve if, for example, an organization needs to
mitigate poor financial performance to fund ongoing
capital needs or strategic initiatives.

KEY TAKEAWAYS

Not-for-profit hospitals and health systems often
borrow debt through revenue-backed municipal
bonds, meaning that the debt obligations will be
met by the revenue the organization generates
over the life of the bond.


Ÿ Because revenue-backed bonds are higher
risk than general obligation bonds backed by a
municipality’s taxing authority (revenues can
be disrupted), investors seek assurance that an
organization will be able to meet its obligations.


Ÿ Credit ratings offer investors an assessment of
an organization’s current and near-term ability to
meet these obligations.

Ÿ Days Cash on Hand is an important metric in
assessing the organization’s credit rating, and a
higher rating generally requires a higher number of
Days Cash on Hand.


Ÿ A higher credit rating allows organizations to
borrow money at more affordable interest rates.


Ÿ A higher level of financial reserves and investment
income in relation to existing debt obligations also
increases an organization’s debt capacity, creating
an important safety valve if an organization has
to borrow money to mitigate poor operating or
investment performance.

The Financial Structure of Not-for-Profit Hospitals and Health Systems

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Not-for-profit hospitals and health systems rely on
three interdependent functions to contribute to the
financial resilience of the organization: namely, the
ability to withstand adverse changes to these core
functions and continue to provide services to the
community (Figure above).


Ÿ The Operating Function:

The Operating Function
manages the portfolio of clinical services and
strategic initiatives that define the charitable mission
of the organization. Clinical services generate
patient revenue, and if that revenue creates a
positive margin (i.e., exceeds expenses), that excess
is invested back into the health system. Operating
margins are, on average, very low in not-for-profit
healthcare. For example, for the not-for-profit
hospitals and health systems rated by Moody’s
Investors Service, median operating margins from
2017–2021 ranged between 2.1% and 2.9%. These
rated organizations represent only a few hundred
of the thousands of hospitals and health systems
in the country and are among the most financially
healthy. A 2018 study of a wider group of more than
2,800 hospitals found an average clinical operating
margin of -2.7%.


Ÿ The Finance Function:

Because the positive margins
generated by the Operating Function are rarely
enough to support the intensive capital needs of
maintaining and improving acute-care facilities, care
delivery models, and technology, not-for-profit health
systems rely on the Finance Function for internal
and external capital formation. The Finance Function
builds cash reserves and secures external financing

(e.g., bond proceeds, bank lines of credit) to support
the capital spending needs of the organization. The
cash reserves maintained by the Finance Function
also help the organization meet daily expenses at
times when expenses exceed revenues.


Ÿ The Investment Function:

Not-for-profit hospitals
and health systems will also endeavor to invest
some of their cash reserves to generate returns
that, first, act as an additional hedge against
potential risks that could disrupt operations or cash
flow, and second, pursue independent returns.
Any independent returns generated serve as an
important supplement to revenues generated
through the Operating Function.

The three functions described above are common to
all not-for-profit organizations. The main differences
are mostly within the Operating Function. In higher
education, for example, tuition revenue takes the
place of clinical revenue. While higher education also
maintains enterprise risk, the Operating Function
for colleges and universities is less vulnerable to
volume swings as enrollment is typically steady and
predictable. Likewise, higher education is less labor
intensive than healthcare.

Financial reserves include all liquid cash resources
and unrestricted investments held in the Finance and
Investment Functions. These reserves are equivalent
to the emergency funds individuals are encouraged
to maintain to help them meet living expenses for
six to twelve months in case of a job loss or other
disruption to income.


Absolute reserve levels are important, as discussed
above, but they must also be viewed relative to
a hospital’s daily operating expenses. A common

metric used to describe these reserves is Days Cash
on Hand. If an organization has 250 Days Cash on
Hand, that means that it would be able to meet its
operating expenses for 250 days if revenue was
suddenly shut off. The size of Days Cash on Hand will
be proportionate to the size of the hospital and health
system. Some of the largest not-for-profit health
systems have annual operating expenses approaching
$30 billion annually: meeting those expenses for 250
days would require Days Cash on Hand of more than
$20 billion.


The shutdown that occurred in the early days of the
pandemic (March through May 2020) is an example
of a time when cash flow nearly shut off for most
hospitals (except for emergency care). Reserves,
measured in absolute and relative terms such as
Days Cash on Hand, allowed hospitals that were
nearly empty to maintain staffing and operations
throughout the period. Other hospitals that were
inundated with patients during the initial surge
were able to fund increased staffing and personal
protective equipment costs through their reserves.
Other examples of how reserves provide a buffer

against unexpected events include natural disasters
such as hurricanes, tornadoes, deep freezes, and
wildfires, which can require the temporary shutdown
of operations; cyberattacks, which can halt a hospital’s
ability to provide services; a defunct payer that is unable
to reimburse hospitals for care already provided; or an
escalation in labor costs as experienced by many during 2022.

Without the reserves to pay for contract labor or
premium pay, many hospitals would have undoubtedly
had to close or limit services to their community.

KEY TAKEAWAYS

Ÿ Financial reserves are created through the
interdependent relationship of operating, finance,
and investment functions in not-for-profit health
systems.


Ÿ These reserves build financial resilience: the ability
to withstand adverse changes to core functions and
continue to provide services to the community.


Ÿ Financial reserves play an important role in
supplementing any shortfalls in revenue or capital
formation in one or more of these three functions.

Ÿ Financial reserves are equivalent to individual
emergency funds—both are intended to cover
expenses if income or revenue flows are
significantly disrupted.


Ÿ A common metric used to describe financial
reserves is Days Cash on Hand: an organization’s
combined liquid, unrestricted cash resources and
investments, measured by how many days these
reserves could cover operating expenses if cash
flows were suddenly shut off.

Financial reserves, measured in absolute
and relative terms such as Days Cash
on Hand, allowed hospitals that were
nearly empty during the early days of
the pandemic to maintain staffing and
operations throughout the period. Other
hospitals that were inundated with patients
during the initial surge were able to fund
increased staffing and personal protective
equipment costs through their reserves.

A Comparison: Financial Reserves and Higher Education Not-for-Profits

Not-for-profit hospitals and health systems are
not alone in their reliance on financial reserves;
most not-for-profit organizations carry reserves
that enable them to maintain operations and
make needed investments even in times of weaker
operating performance. Higher education is
probably most comparable to healthcare, with
significant overlaps between the two sectors.
Moody’s Investors Service, one of the three major
rating agencies, notes that 16% of its rated higher
education institutions have affiliated academic
medical centers (AMCs), and revenue from patient
care at these AMCs contributes to 28% of the
overall revenues for the higher education sector.


The magnitude of Days Cash on Hand levels
varies by industry; financial reserves maintained
by private not-for-profit higher education

institutions, for example, are significantly greater
than those maintained by not-for-profit hospitals
and health systems. For comprehensive private
universities across all rating categories, Moody’s
reports median Days Cash on Hand in 2021 of 498
days for assets that could be liquidated within a
year. This compares with a median 265 Days Cash
on Hand in 2021 across all freestanding hospitals,
single-state, and multi-state healthcare systems
rated by Moody’s.


Financial reserves are a critical measure of
financial health across both healthcare and higher
education. They help ensure that not-for-profit
colleges, universities, hospitals, and health systems
can continue to fulfill their vital societal functions
when operations are disrupted, or when they are
experiencing a period of sustained financial distress.

National Hospital Flash Report: April 2023

Posted on by • Posted in Advance Practice Nurse, Advanced Practice Providers (APP), Critical Workforce, Health System, Hospital, Hospital Industry, Labor Spend Management, Nurse Practitioners, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Physician Assistant, Physician Associate, Recruiting, Retention, Talent Acquisition Strategy, Talent Competition, Talent Management, Workforce • Leave a comment

https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-april-2023

Hospital margins continued to stabilize in March with a slight improvement over February, according to data from Kaufman Hall’s National Hospital Flash Report. However, margins remain below pre-pandemic levels, leaving hospitals in a vulnerable position should a recession or a new public health emergency materialize.

For provider practices, physician productivity increased but the increased revenues could not keep pace expenses, according to the quarterly Physician Flash Report. 

While things appear relatively calm at the moment, there remain significant challenges—specifically labor shortages and diminished margins—that could quickly reach the surface if hospitals and health systems are faced with another crisis. 

Kaufman Hall experts are seeing increased reliance on advanced practice providers (APPs)—e.g. Nurse Practitioners and Physician Associates—and note that those that hire, retain and deploy this critical workforce most effectively will see more success in the long term.

Most Adults with Past-Due Medical Debt Owe Money to Hospitals

Posted on by • Posted in Bad Debt Expense, Charity Care, Federal Poverty Level (FPL), Health Insurance Coverage Adequacy, Health Policy, Health System, Hospital, Hospital Industry, Medical Debt, Medical Debt Financing, Rev Cycle Management, Revenue Cycle, Uncompensated Care, Underinsured, Uninsured • Leave a comment

https://www.urban.org/research/publication/most-adults-past-due-medical-debt-owe-money-hospitals

This brief examines past-due medical debt among nonelderly adults and their families using nationally representative survey data collected in June 2022. The analysis assesses the share of adults ages 18 to 64 with past-due medical bills owed to hospitals and other health care providers as well as the actions taken by hospitals to collect payment or make bills easier to settle.

It focuses on the experiences of adults with family incomes below and above 250 percent of the federal poverty level (FPL), approximating the income cutoff used by many hospitals to determine eligibility for free and discounted care.

WHY THIS MATTERS

In their efforts to protect patients from medical debt, policymakers have increasingly focused on the role of hospital billing and collection practices, with particular scrutiny directed toward nonprofit hospitals’ provision of charity care. Understanding the experiences of people with past-due bills owed to hospitals and other providers can shed light on the potential for new consumer protections to alleviate debt burdens.

WHAT WE FOUND

  • More than one in seven nonelderly adults (15.4 percent) live in families with past-due medical debt. Nearly two-thirds of these adults have incomes below 250 percent of FPL.
  • Nearly three in four adults with past-due medical debt (72.9 percent) reported owing at least some of that debt to hospitals, including 27.9 percent owing hospitals only and 45.1 percent owing both hospitals and other providers. Adults with past-due hospital bills generally have much higher total amounts of debt than those with past-due bills only owed to non-hospital providers.
  • Most adults (60.9 percent) with past-due hospital bills reported that a collection agency contacted them about the debt, but much smaller shares reported that the hospital filed a lawsuit against them (5.2 percent), garnished their wages (3.9 percent), or seized funds from a bank account (1.9 percent).
  • Though about one-third (35.7 percent) of adults with past-due hospital bills reported working out a payment plan, only about one-fifth (21.7 percent) received discounted care.
  • Adults with incomes below 250 percent of FPL were as likely as those with higher incomes to experience hospital debt collection actions and to have received discounted care.

The concentration of past-due medical debt among families with low incomes and the large share who owe a portion of that debt to hospitals suggests that expanded access to hospital charity care and stronger consumer protections could complement health insurance coverage expansions and other efforts to mitigate the impact of unaffordable medical bills.

HOW WE DID IT

This analysis draws on data from the June 2022 round of the Urban Institute’s Health Reform Monitoring Survey (HRMS), a nationally representative, internet-based survey of adults ages 18 to 64 that provides timely information on health insurance coverage, health care access and affordability, and other health topics. Approximately 9,500 adults participated in the June 2022 HRMS.

The survey questionnaire and information about the survey design is available at https://www.urban.org/policy-centers/health-policy-center/projects/health-reform-monitoring-survey/survey-resources.

13 hospital and health systems hit with credit downgrades, revisions

Posted on by • Posted in Credit Downgrade, Credit Quality, Credit Ratings, Financial Pressure, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
https://www.beckershospitalreview.com/finance/13-hospital-and-health-systems-hit-with-credit-downgrades-revisions.html?origin=CEOE&utm_source=CEOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Here is a summary of recent credit downgrades and outlook revisions for hospitals and health systems going back to the most recent major roundup March 16.

The various downgrades reflect continued operating challenges many nonprofit systems are facing and will likely continue to deal with for some years to come. The most recent downgrades and revisions, which have not been included in any more recent roundups, are listed first.

Baptist Health Care (Pensacola, Fla.): 

BHC had the rating downgraded on a series of its bonds as a reflection of “pressured operating performance and cash flow,” S&P Global said April 19.

As well as typical industry pressures of inflation and labor expenses, the three-hospital system may face further challenge because of a replacement project for its flagship Baptist Hospital that is due to be completed in late 2023.

Beacon Health (South Bend, Ind.): 

Beacon Health System had its outlook revised to negative from stable on “AA-” rated bonds it holds, S&P Global said April 14.

The move reflects weaker operating results and an expectation of increased debt over the near term.

Kuakini Health System (Honolulu): 

Kuakini Health System, which has a “CCC” long-term rating, has been placed on CreditWatch with negative implications, S&P Global said April 14.

The move reflects the system’s sustained operating challenges with no foreseeable major changes and questions about its long-term viability, the agency said, describing the system’s “precarious financial position.”

Baystate Health (Springfield, Mass.): 

Baystate Health had ratings downgraded on specific bonds related to its flagship medical center, S&P Global said April 12.

While ratings were affirmed on other debt, those on others specific to the 780-bed Baystate Medical Center were downgraded to “A” from “A+” as the system’s operating challenges continue into 2023, the agency said.

Penn State Health (Hershey, Pa.): 

Higher-than-expected operating losses have led to Penn State Health being downgraded on a series of bonds from “A+” to “A,” S&P Global said April 6.

Original budgets for the first part of fiscal 2023 targeted a slightly positive full-year operating margin, but data shows a $75 million lower-than-forecasted figure, S&P Global said. Operating income showed a loss of $154.5 million for the six months ending Dec. 31 compared with a $48.8 million loss in all of fiscal 2022.

Legacy Health (Portland, Ore.): 

Legacy Health had its outlook revised to negative from stable amid expectations the eight-hospital system will continue to experience difficult operating conditions and concern it will continue to fail to meet debt obligations, Moody’s said April 5.

The rating on its revenue bonds was affirmed at “A1.” Total debt stands at $738 million.

Providence (Renton, Wash.): 

The 51-hospital system recorded the first of three downgrades in the space of a few weeks March 17 when Fitch Ratings attached an “A” grade to both the system’s default rating and a series of bonds worth approximately $7.4 billion. The outlook for the system is negative due to its higher-than-average debt loads, Fitch said. 

S&P Global then downgraded Providence to the same notch from “A+” March 21 amid higher expenses and an expectation of only a multiyear process of recovery. The outlook for the system was also negative given the steep operating losses that need to be dealt with, S&P said.

Finally, Providence was downgraded by Moody’s on a series of bonds from “A1” to “A2.

Thomas Jefferson (Philadelphia): 

Thomas Jefferson University has undergone a credit downgrade with cash flow margins expected to stay low for “several years,” Moody’s said March 30.

The 18-hospital system, which also operates 10 colleges located primarily on two campuses in Philadelphia, is expected to stabilize its days of cash on hand to about 140, but debt will remain high, Moody’s said. The outlook is stable.

Oaklawn Hospital (Marshall, Mich.): 

The 68-bed community hospital was downgraded to “BBB-” from “BBB” as it reported operating losses due to higher expenses and length of patient stay, Fitch Ratings said March 29.

The downgrade refers both to its default rating and on bonds worth $63.5 million. The outlook is negative.

DCH Health (Tuscaloosa, Ala.): 

The three-hospital system saw its rating on a series of bonds lowered to “A-” from “A” as it continues to suffer operating losses, S&P Global said March 29.

The system’s “deeply negative underlying operations” are unlikely to lead to any substantial improvement in the near future, the agency said.

DCH Health operates a total of 510 staffed beds.

AU Health System (Augusta, Ga.): 

The system, which is being pursued by Marietta, Ga.-based Wellstar Health, was downgraded March 23 amid concern over negative cash flow and that it may breach covenant agreements later this year, Moody’s said.

The downgrade to “B2” from “Ba3” applies to revenue bonds the system holds. The outlook is negative.

PeaceHealth (Vancouver, Wash.): 

“Considerable operating stress” was the driver behind Fitch Ratings downgrading the 10-hospital system March 21.

The downgrade to “A+” from “AA-” applied to both the system’s default rating and on a series of bonds. The outlook is stable.

Management is targeting a return to profitability by fiscal 2026, Fitch noted.

Mercy Iowa City Hospital:

The hospital, part of Des Moines, Iowa-based MercyOne, was downgraded March 16 to “Caa1” from “B1” because of what Moody’s called “severe cash flow deterioration.” The “Caa1” categorization is seen as “substantial risk.”

PeaceHealth cuts 251 jobs

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PeaceHealth has eliminated 251 caregiver roles across multiple locations, the Vancouver, Wash.-based health system said in a statement shared with Becker’s on April 26.

“PeaceHealth is actively responding to the significant challenges faced by healthcare organizations across the U.S. Comprehensive plans are already underway to recruit additional nurses, ensure patients can return home as quickly as possible and grow the services we know our community members need,” the statement read. 

“As always, we are also adjusting operations and services to reflect changes in our communities and ensure we are being responsible to our healing mission into the future.”

PeaceHealth said affected roles include 121 from Shared Services, which supports its 16,000 caregivers in Washington, Oregon and Alaska. Shared Services include administrative services that support clinical caregivers such as human resources, information technology, marketing and communications, and finance.

The remaining affected roles are “relatively evenly spread across our three networks. In line with our value of respect, we offer comprehensive transitional support consistent with our policies and practices to all impacted caregivers,” the health system said.

PeaceHealth spokesperson Alison Taylor told Becker’s the health system anticipates many affected caregivers will be qualified for the nearly 1,300 open clinical roles across the organization.

In February, PeaceHealth reported a loss of $90.8 million in the six months ending Dec. 31, 2022. The health system was also downgraded in March by Fitch Ratings, which cited the organization’s “considerable operating stress.”

PeaceHealth operates 10 hospitals across Alaska, Oregon and Washington.

Hospitals’ ‘dire’ financial situation, in 4 charts

Posted on by • Posted in American Hospital Association (AHA), Financial Distress, Financial Performance, Financial Pressure, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health Policy, Health System, Hospital, Hospital Industry, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
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According to a new report from the  American Hospital Association (AHA), hospitals and health systems are facing significant financial pressures from rising expenses, including for labor, drugs, medical supplies and more. And without increased government support, the organization warns that patients’ access to care could be at risk.

Hospitals continue to see expenses grow, negative margins

In the report, AHA writes that several factors, including historic inflation and critical workforce shortages leading to a reliance on contract labor, led to “2022 being the most financially challenging year for hospitals since the pandemic began.”

According to data from  Syntellis Performance Solutions, overall hospital expenses increased by 17.5% between 2019 and 2022 — more than double the increases in Medicare reimbursements during the same time. Between 2019 and 2022, Medicare reimbursement only grew by 7.5%.

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With expenses significantly outpacing reimbursement, hospital margins have been consistently negative over the last year. In fact, AHA noted that “over half of hospitals ended 2022 operating at a financial loss — an unsustainable situation for any organization in any sector, let alone hospitals.”

So far, this trend has continued into 2023, with hospitals reporting negative median operating margins in both January and February.

A recent analysis also found that the first quarter of 2023 had the largest number of bond defaults among hospitals in over 10 years. 

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Where are hospital expenses increasing?

Between 2019, and 2022 hospital labor expenses increased by 20.8%, a rise that was largely driven by a growing reliance on contract labor to fill in workforce gaps during the pandemic. Even after accounting for an increase in patient acuity, labor expenses per patient increased by 24.7%.

Compared to pre-pandemic levels, hospitals saw a 56.8% increase in the rates they were charged for contract employees in 2022. Overall, hospitals’ contract labor expenses increased by a “staggering” 257.9% in 2022 compared to 2019 levels.

A sharp rise in inflation in recent months has also led to a significant increase in hospitals’ non-labor expenses, particularly for drugs and medical expenses. According to a report by  Kaufman Hall, just non-labor expenses would lead to a $49 billion one-year expense increase for hospitals and health systems.

Since 2019, non-labor expenses have grown 16.6% per patient. Hospitals’ expenses for drugs and medical supplies/equipment have seen similar increases per patient at 19.7% and 18.5%, respectively. Costs of laboratory services (27.1%), emergency services (31.9%), and purchased services, including IT and food and nutrition services, (18%) have also increased significantly per patient. 

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Outside of labor and non-labor expenses, AHA writes that policies from health insurers have also contributed to significant burden among hospital staff and increased administrative costs. Currently, administrative costs account for up to 31% of total healthcare spending — of which, billing and insurance makes up 82%.

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What Congress can do to support hospitals

With the COVID-19 public health emergency ending on May 11, several important hospital waivers and flexibilities will soon end, and “[t]he downstream effects of this will be wide-ranging as hospitals will be faced with a set of additional challenges,” AHA writes.

“Rising costs for drugs, supplies, and labor coupled with sicker patients, longer hospital stays, and government reimbursement rates that do not come close to covering the costs of caring for patients have created a dire situation for hospitals and health systems,” said AHA president and CEO Rick Pollack.

“This is not just a financial problem; it is an access problem.

When healthcare providers cannot afford the tools and teams they need to care for patients, they will be forced to make hard choices and the people who will be impacted the most are patients. We can’t let that happen. Congress and others must act to preserve the care our nation needs and depend on.”

To address these financial challenges and ensure that hospitals are able to continue caring for patients, AHA has suggested several actions Congress could take to support hospitals going forward, including:

  • Enacting policies to support efforts to boost the healthcare workforce and ensure of future pipeline of professionals to combat longstanding labor shortages
  • Rejecting attempts to cut Medicare or Medicaid payments to hospitals, which could further reduce patients’ access to care
  • Encouraging CMS to use its “special exceptions and adjustments” to make retrospective adjustments to account for differences between what was implemented for fiscal year 2022 and what is currently projected
  • Creating a special statutory designation and providing additional support to hospitals that serve historically marginalized communities

“As the hospital field maintains its commitment to care in the face of significant challenges, policymakers must step up and help protect the health and well-being of our nation by ensuring America has strong hospitals and health systems,” AHA writes.

Kaiser Permanente to acquire Geisinger, form company to operate other nonprofit systems

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Dive Brief:

  • Kaiser Permanente is acquiring Geisinger Health and forming a new nonprofit to buy and operate other value-oriented nonprofit systems, the organizations announced Wednesday.
  • The new nonprofit, Risant Health, will operate separately from Kaiser Permanente. Geisinger will become part of Risant but maintain its own name and mission, according to a press release.
  • Geisinger president and CEO Jaewon Ryu will be CEO of Risant as the transaction closes, subject to regulatory review. Risant will have its headquarters in Washington, D.C..

Dive Insight:

Risant represents an opportunity for Kaiser, which currently operates in eight states and Washington, D.C., to expand its reach nationwide through targeted acquisitions of nonprofit community health systems, as smaller hospitals continue to struggle in a difficult operating environment.

About half of all U.S. hospitals finished last year with negative margins, according to consultancy Kaufman Hall.

Kaiser, which reported $95 billion in revenue in 2022, plans to spend $5 billion on Risant over the next five years, and add five or six health systems to Risant over that period, according to reports.

Kaufman Hall said recently it expects a “new wave of transaction activity” and a growing number of cross-regional partnerships.

Pennsylvania-based Geisinger has 10 hospital campuses and a health plan that covers more than 500,000 members. It has more than 25,000 employees. Both Geisinger and Kaiser reported operating losses last year, as supply and labor expenses rose.

Kaiser in 2022 posted a $4.5 billion net loss, compared to a prior-year gain of $8.1 billion.

Federal and state regulators still need to approve the deal, the financial terms of which were not disclosed. It’s likely to face a high bar for approval as regulators more aggressively scrutinize hospital mergers.

AMERICAN HOSPITALS: Healing a Broken System

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About Us

American Hospitals is the fourth in a series of documentaries produced by the Unfinished Business Foundation, founded by Richard Master, CEO of MCS Industries Inc., who took a deep dive into the economics of the U.S. health-care system after his company was hit year after year with double-digit health insurance rate increases. 

Master teamed up with filmmaker Vincent Mondillo to produce Fix It: Healthcare at the Tipping Point; Big Pharma: Market Failure; Big Money Agenda: Democracy on the Brink, and now, American Hospitals.

A provocative look at the cost and inequities of American Hospitals, often more motivated by money and power than in providing for the health needs of individuals and the communities they were founded to serve. From the filmmakers behind the hit documentaries Fix It: Healthcare at the Tipping Point, Big Money Agenda, and Big Pharma.

Learn more and find out where to see the latest film at fixithealthcare.com/events