7 health systems with strong finances


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

Note: This is not an exhaustive list. Hospital and health system names were compiled from recent credit rating reports and are listed in alphabetical order.

1. St. Louis-based BJC Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has good margins and a favorable market position, according to Moody’s.

2. Hollywood, Fla.-based Memorial Healthcare System has an “Aa3” rating and stable outlook with Moody’s. The health system has a dominant market position in the southern portion of South Broward County and above average balance sheet liquidity, according to Moody’s.

3. Broomfield, Colo.-based SCL Health has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. The health system has strong operating performance and solid balance sheet measures, according to Moody’s. The credit rating agency expects the health system’s cash flow to continue to grow.

4. Seattle Children’s Healthcare System has an “Aa2” rating and stable outlook with Moody’s. The health system has consistently strong operating performance, solid liquidity measures, and a favorable reputation within a broad service area, according to Moody’s.

5 Norfolk, Va.-based Sentara Healthcare has an “Aa2” rating and stable outlook with Moody’s. The health system has a leading market position in its service area, robust balance sheet metrics and solid margins, according to Moody’s.

6. St. Louis-based SSM Health has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile and a growing health plan, according to Fitch. The credit rating agency expects SSM to continue to grow unrestricted liquidity and sustain improved operating performance.

7. Arlington-based Texas Health Resources has an “Aa2” rating and stable outlook with Moody’s. The health system has solid financial performance, a leading market position, good coverage of moderate debt levels, and a strong cash position, according to Moody’s.


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Hospital profitability up after significant declines in June, Kaufman Hall finds


Hospitals recorded profit improvements in July after posting significant year-over-year decreases in June, according to a report from financial advisory firm Kaufman Hall.

The firm found hospitals’ EBITDA margin rose 77.5 basis points month over month. Hospitals also saw their operating margins climb 105 basis points. Both measures marked the sixth month of improved hospital profitability out of the past seven months.

“While these trends generally are good news for the industry, the improvements do not necessarily mean that hospitals are achieving sufficient margins,” according to Kaufman Hall. “Also, margins of individual hospitals do not necessarily reflect those of overall health systems.”

Kaufman Hall noted that hospitals did see their volumes increase in July compared to June, which saw declines in patient volumes.

Read the full report here


Comeback or blip? Nonprofit hospital margins show gains in 2018


Dive Brief:

  • Nonprofit hospitals’ operating margins are improving after falling for the last two years, according to an annual report on hospital performance from Fitch Ratings.
  • Smaller hospitals are driving the turnaround and it’s a notable trend because they’re not able to command higher rates from payers like their peers the “must-have” hospitals, according to the report.
  • “The fact that [smaller hospitals] saw meaningful improvement is a good indicator that operational strength is returning to the sector, though the highs we saw in 2015 may be an unattainable highwater mark,” Kevin Holloran, senior director for Fitch, said in a statement.

Dive Insight:

The industry continues to experience pressures including slowing inpatient admissions and more patients covered by government-sponsored health insurance such as Medicare, which typically reimburses at a lower rate compared to commercial insurers.

Wages are also under pressure amid a tight labor market, and the need to shift to an environment that is increasingly reimbursing for quality — not quantity.

The question now is whether these recent gains are a “temporary blip” or a major shift, Fitch analysts noted.

“Not-for-profit hospitals are by no means out of the woods yet with sector pressures likely to continue, but there appears to be light at the end of the tunnel in terms of longer-term stability,” Holloran said.

Still, despite the margin improvement, Fitch maintains a negative outlook for the sector.

Even still, “the not-for-profit healthcare sector has shown considerable resiliency over the years, weathering events like the 2008/2009 great recession, sequestration cuts to governmental funding, and a shifting payor mix,” Fitch analysts said.

Fitch believes consolidation among providers will continue. Providers will focus on increasing their size and scale to maintain leverage over insurance companies and allow them to invest in population health.


Cleveland Clinic more than quadruples operating income


Cleveland Clinic’s revenues and operating income increased year over year in the second quarter of 2019, according to unaudited financial documents.

Cleveland Clinic’s revenues climbed to $2.7 billion in the second quarter of this year, up 20 percent from $2.2 billion in the same period of 2018. The boost was largely attributable to higher net patient service revenue, which increased 20.5 percent year over year.

The system’s operating expenses were up 16 percent year over year in the second quarter of 2019. Expenses grew across all categories, including supplies, administrative services, and salaries, benefits and wages.

Cleveland Clinic ended the second quarter of 2019 with operating income of $116.2 million, up from $25.1 million in the second quarter of last year. The system’s operating margin was 4.4 percent in the second quarter of this year, compared to an operating margin of 1.1 percent in the same period of 2018.

During the second quarter of this year, Cleveland Clinic’s nonoperating gains totaled $110.3 million. That’s compared to the second quarter of 2018, when the system reported nonoperating gains of $55.6 million. The system said the increase was primarily attributable favorable changes in the financial markets.

Cleveland Clinic ended the second quarter of 2019 with net income of $226.5 million, up from $80.7 million in the same period a year earlier.


DOJ investigates Providence St. Joseph Health’s Swedish Health Services


The U.S. Department of Justice is probing Providence St. Joseph Health’s Swedish Health Services in a civil investigation, the not-for-profit integrated health system revealed in its recent quarterly earnings report.

The DOJ requested documents from Seattle-based Swedish related to certain arrangements, joint ventures and physician organizations, according to the report. Providence St. Joseph said that the investigation will not have a “material adverse effect” on its financials.

“Like all large institutions, Swedish is subject periodically to investigations and lawsuits,” Swedish said in a statement. “Per our policy, we are not able to discuss the specifics of any investigation. However, Swedish fully cooperates with all investigations.”

Renton, Wash.-based Providence St. Joseph also disclosed in the earnings report malpractice allegations against certain affiliates, although the “probable recoveries in these proceedings and the estimated costs and expenses of defense will be within applicable insurance limits or will not materially adversely affect the business or properties of the system,” the organization said.

The DOJ said in a statement that it does not confirm, deny or comment on investigations.

In 2014, HHS’ Office of Inspector General audited Swedish Health’s Swedish Medical Center–First Hill, an acute-care hospital in Seattle. It found that about two-thirds of 257 inpatient and outpatient claims from 2010 to 2012 did not fully comply with Medicare billing requirements, resulting in net overpayments of nearly $937,500.

Also, Swedish Health was accused in 2017 of asking neurosurgeons to increase patient volume and perform unnecessary surgeries.

The recent investigation involving Swedish may relate to a delicate balance providers must strike with their affiliates.

Health systems have been carefully navigating around the Stark law, which aims to curb Medicare and Medicaid spending by prohibiting physicians and hospitals from making referrals based on their financial self-interest. But the 1989 statutes conflict with outcome-oriented care, providers argue as the law dissuades them from incentive-based arrangements.

The Stark law offers little, if any, room for error and carries significant financial penalties, experts said. Maintaining compliance and abiding audits can drain resources.

Through six months of Providence St. Joseph Health’s 2019 fiscal year, it reported an operating income of $250 million on operating revenue of $12.6 billion, up from $30 million of operating income on $12 billion of operating revenue over the same period prior. The health system reported $41 million in restructuring costs, as it aims to streamline operations and boost productivity.

For 2018, the organization drew just $3 million in operating income last year on $24.4 billion in total operating revenue. Excluding asset impairment, severance and consulting costs related to restructuring, the system said its 2018 operating income would have been $165 million. The restructuring costs are being spread across 2018 and 2019.

As it restructures, Providence St. Joseph has been expanding its non-acute portfolio, forming a for-profit population health management company, launching its second, $150 million venture fund and buying a revenue-cycle management company based on blockchain technology.




Advocate Aurora Health’s net income more than doubles in Q2


Image result for advocate aurora health headquarters

Outpatient volume growth helped push Advocate Aurora Health’s revenue higher in the second quarter of 2019, according to unaudited financial documents released Aug. 22.

Advocate Aurora Health, which was formed in April 2018 and has dual headquarters in Downers Grove, Ill., and Milwaukee, reported revenue of $3.2 billion in the second quarter of 2019, up from $3 billion in the same period a year earlier. Patient service revenue climbed 8.8 percent year over year partially due to increased outpatient volume. The health system said capitation revenue dropped 9.9 percent year over year due to the conversion of a full-risk arrangement to fee-for-service.

After factoring in a 4.7 percent year-over-year increase in expenses, Advocate Aurora posted operating income of $132.3 million in the second quarter of 2019. That’s up from $107.2 million in the same period a year earlier.

The 28-hospital system reported nonoperating income of $286 million in the second quarter of this year, which includes investment income of $194.4 million. Advocate Aurora ended the second quarter of 2019 with net income of $418.4 million, up from $158.7 million a year earlier.