Nonprofit hospital margins hit 4.3% in April, up 33% year over year, according to Kaufman Hall’s “National Hospital Flash Report” released June 3.
Kaufman Hall examined data from 1,300 hospitals in Syntellis Performance Solutions’ database and found that while hospital margins are improving overall, so is the gap between the highest and lowest performing hospitals. The best performing hospitals had a margin of 28.9%, compared to -16.1% for the worst performing hospitals.
“While financial performance looks solid on the surface, a closer examination of the data shows a greater divide between high- and low-performing hospitals,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall. “Forty percent of hospitals in the United States are losing money.
Organizations who have weathered the challenges of the last few years have adopted a wide range of proactive and growth-related strategies, including improving discharge transitions and building a larger outpatient footprint.”
Operating margins were up 7% month over month and year to date operating margins were 21% higher than in 2023. Operating EBITDA margin year to date was up 14% over the same period last year, and flat with hospital performance in 2021.
Net operating revenue per calendar day jumped 9% year to date in April compared, and 5% over March 2024. Inpatient revenue climbed 12 percent year over year in April.
Hospital operating margin index also increased in April to 4.3% after three months of decline.
Of note, the data revealed:
1. Outpatient revenue increased 10% year over year in April. 2. Average length of stay dropped 4% year over year in April. 3. Emergency department visits increased to hit pre-pandemic levels.
Here are 37 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.
AdventHealth has an “AA” rating and stable outlook with Fitch. The rating is based on the Altamonte Springs, Fla.-based system’s competitive market position — especially in its core Florida markets — and its financial profile, Fitch said.
Advocate Health members Advocate Aurora Health and Atrium Health have “Aa3” ratings and positive outlooks with Moody’s. The ratings are supported by the Charlotte, N.C-based system’s significant scale, strong market share across several major metro areas and good financial performance and liquidity, Moody’s said.
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.
Carilion Clinic has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Roanoke, Va.-based system’s scale, regional significance as a tertiary referral system with broad geographic capture, and a highly integrated physician base with a well-defined culture, Moody’s 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.
Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the system’s strength as an international brand in highly complex clinical care and research and centralized governance model, the ratings agency 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.
Memorial Hermann Health System has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Houston-based system’s leading and expanding market position and strong demand in a growing region, Moody’s said.
Nationwide Children’s Hospital has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the Columbus, Ohio-based system’s strong market position in pediatric services, growing statewide and national reputation and continued expansion strategies.
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.
UChicago Medicine has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s strong financial profile in the context of its broad and growing reach for high-acuity services, 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.
With a single ruling, the Federal Trade Commission removed the nation’s occupational handcuffs, freeing almost all U.S. workers from non-compete clauses. The medical profession will never be the same.
On April 23, the FTC issued a final rule, affecting not only new hires but also the 30 million Americans currently tethered to non-compete agreements. Scheduled to take effect in September—subject to the outcome of legal challenges by the U.S. Chamber of Commerce and other business groups—the ruling will dismantle longstanding barriers that have kept healthcare professionals from changing jobs.
The FTC projects that eliminating these clauses will boost medical wages, foster greater competition, stimulate job creation and reduce health expenditures by $74 billion to $194 billion over the next decade. This comes at a crucial moment for American healthcare, an industry in which 60% of physicians report burnout and 100 million people (41% of U.S. adults) are saddled with medical bills they cannot afford.
Like all major rulings, this one creates clear winners and losers—outcomes that will reshape careers and, potentially, alter the very structure of U.S. healthcare.
Winners: Newly Trained Clinicians
Undoubtedly, the FTC’s ruling is a win for younger doctors and nurses, many of whom join hospitals and health systems with the promise of future salary increases and more autonomy. However, by agreeing to stringent non-compete clauses, these newly trained clinicians have little choice but to place their trust in employers that, shielded by air-tight agreements, have no fear of breaking their promises.
Most newly trained clinicians enter the medical job market in their late 20s and early 30s, carrying significant student-loan debt—nearly $200,000 for the average doctor. Eager for stable, well-paying positions, these young professionals quickly settle into their careers and communities, forming strong relationships with friends and patients. Many start families.
But when these clinicians realize their jobs are falling short of the promises made early on, they face a tough decision: either endure subpar working conditions or uproot their lives. Taking a new job 25 or 50 miles away or moving to a different state are often are only options to avoid breaching a non-compete clause.
In a 570-page supplement to its ruling, the FTC published testimonials from dozens of healthcare professionals whose lives and careers were harmed by these clauses.
“Healthcare providers feel trapped in their current employment situation, leading to significant burnout that can shorten their career longevity,” said one physician working in rural Appalachia.
By banning non-competes, the FTC’s rule will boost career mobility for all clinicians within their own communities. This change will likely spur competition among employers—leading to improved pay and benefits to attract and, equally important, retain top talent. And with the reassurance that they can easily switch jobs if their current employer falls short of expectations, clinicians will enjoy greater professional satisfaction and less burnout.
Winners: Patients In Competitive Markets
Benefits that accrue to doctors and nurses from the FTC’s ban will translate directly to improved outcomes for patients. For example, we know that physicians who report symptoms of burnout are twice as likely to commit a serious medical error. Studies have shown the inverse is true, as well: healthcare providers who are satisfied with their jobs tend to have lower burnout rates, which is positively correlated with improved patient outcomes.
Once freed from restrictive non-compete clauses, many clinicians will practice elsewhere within the community. To attract patients, they will have to offer greater access, lower prices and more personalized service. Others with the freedom to choose will join outpatient centers that offer convenient and efficient alternatives for diagnostic tests, surgery and urgent medical care, often at a fraction of the cost of traditional hospital services. In both cases, increased competition will give patients improved medical care and added value.
Losers: Large Health Systems
Large health systems, which encompass several hospitals in a geographic area, have traditionally relied on non-compete agreements to maintain their market dominance. By barring high-demand medical professionals such as radiologists and anesthesiologists from joining competitors or starting independent practices, these systems have been able to suppress competition and force insurers to pay more for services.
Currently, these systems can demand high reimbursement rates from insurers while also maintaining relatively low wages for staff, creating a highly profitable model. Yale economist Zack Cooper’s research shows the consequence of the status quo: prices go up and quality declines in highly concentrated hospital markets.
The FTC’s ruling challenges those conditions, potentially dismantling monopolistic market controls. As a result, insurers will no longer be forced to contend with a single, dominant provider. And with health systems pushed to offer better wages and benefits to retain their top talent, bottom lines will shrink.
While nonprofit hospitals and health systems are not currently under the FTC’s jurisdiction, the agency has pointed out that these facilities might be at “a self-inflicted disadvantage in their ability to recruit workers.” Moreover, as Congress intensifies scrutiny on the nonprofit status of U.S. health systems, hospitals that do not voluntarily align with the FTC’s guidelines may find themselves compelled to do so through legislative actions.
Losers: Hospital Administrators
Individual hospitals have faced a unique challenge over the past decade. Across the country, inpatient numbers are falling, which makes it harder for hospital administrators to fill beds overnight. This trend has been driven by advancements in medical technology and new practices that enable more outpatient procedures, along with changes in insurance reimbursements favoring less costly outpatient care. As a result, hospital administrators have been compelled to adapt their financial strategies.
Nowadays, outpatient services account for about half of all hospital revenue. These range from physician consultations to specialized procedures like radiological and cardiac diagnostics, chemotherapy and surgeries.
Medicare and other insurers typically pay hospitals more for these outpatient services than they pay local doctors and other facilities. Knowing this, hospitals are hiring community doctors and acquiring diagnostic and procedural facilities, then boosting profitability by charging the higher hospital rates for the same services.
Hospital administrators know that this strategy only works if the newly hired clinicians are prohibited from quitting and returning to practice within the same community. If they do, their patients are likely to go with them. This is why the non-compete clauses are so essential to a hospital’s financial success.
As expected, the American Hospital Association opposes the FTC’s rule, arguing that non-compete clauses protect proprietary information. In practice, most of the doctors affected by the ban are providing standard medical care and have no proprietary knowledge that requires protection.
Looking Ahead
Today’s hospital systems are starkly divided between haves and have-nots. Facilities in affluent areas often enjoy high reimbursement rates from private insurers, boosting financial success and administrator salaries. In contrast, rural hospitals grapple with low patient volumes while facilities in economically disadvantaged, high-population areas face greater financial difficulties.
The current model is not working. The old ways of doing things—enforcing non-competes, charging higher fees for identical services and promoting market consolidation to hike prices—are not sustainable solutions.
The abolition of non-compete agreements will produce both winners and losers. In the healthcare sector, the ultimate measure of a policy’s impact should be its effect on patients—and the overwhelming evidence suggests that eliminating these clauses will benefit them greatly.
Peoria, Ill.-based OSF HealthCare has seen drastic improvements to its financial performance over the last two years, a performance that has allowed the health system to see revenue growth and expand its M&A footprint.
OSF was able to turn around a $43.2 million operating loss (-4.5% margin) in the first quarter ended Dec. 31, 2022, to a $0.9 million gain over the same period in 2023.
But the health system didn’t stop there and, in the first six months ended March 31, 2023, transformed a $60.9 million operating loss to an $8.9 million gain for the same period in 2024.
OSF HealthCare CFO Michael Allen connected with Becker’s to discuss the strategies that helped OSF get to a more steady financial place and some of their plans for the future.
Question: What strategies has OSF HealthCare implemented to help it turn the corner financially?
Michael Allen: OSF Healthcare has improved operating results by more than $70 million compared to FY2023, after seeing an even larger improvement from FY2022 to FY2023. After a very difficult FY2022, from a financial perspective, the organization launched a series of initiatives to return to positive margins.
There has been a focus on reducing the reliance on contract labor, nursing and other key clinical positions, with better recruiting and retaining initiatives. The organization is actively implementing automation for repeatable tasks in hard-to-recruit administrative functions and is actively managing supply and pharmaceutical costs against inflationary pressures.
OSF has also seen revenue growth from patient demand, expanding markets, capacity management and improved payment levels from government and commercial payers.
Q: KSB Hospital and OSF HealthCare recently entered into merger negotiations. How do you expect hospital consolidation to evolve in your market as many small, independent providers continue to face financial challenges and struggle to improve their bottom lines?
MA: The economics of the healthcare delivery system model is challenging in most markets, but particularly difficult for small and independent hospitals and clinics. Given the structure of the payment system and the rising operating costs, I don’t see this pressure easing any time soon.
OSF is looking forward to our opportunity to extend our healthcare ministry to KSB and the greater Dixon area and continue their great legacy of patient care.
Q: What advice would you have for other health system financial leaders looking to get their margins up this year?
MA:There are no silver bullets to improving margins. It’s the daily work of using our costs wisely and executing on important strategies that will win the day. Automation, elimination of non-value-added costs and continuously looking for opportunities to get the best care, patient engagement and workforce engagement is where OSF and other health systems will continue to focus.
Q: An increasing number of hospitals and health systems across the U.S. are dropping some or all of their commercial Medicare Advantage contracts. Where do you see the biggest challenges and opportunities for health systems navigating MA?
MA: As more and more patients and payers are entering Medicare Advantage, we continue to watch our metrics on payment levels to ensure we are being paid fairly and within contract terms for our payer partners.
There does appear to be a trend of increasing denials that often aren’t justified or are not within our contract terms, and we will continuously work to rectify those issues with our payers to ensure our patients receive the appropriate care and OSF is paid fairly for services provided.
In last month’s blog, we discussed the importance of financial planning, both for internal audiences—including the leadership team and the board of trustees—and for external audiences—including prospective students and their families, rating agencies, alumni and other stakeholders. This month, in the first of a series of blogs focused on key finance-related issues, we’re turning our attention to a broader and deeper internal audience, asking the question, “What is your institution’s financial literacy?”
The terms described in this blog will be very familiar to members of college and university finance teams and to many institutional leaders as well.
The point is that these terms should be familiar to as many individuals as possible throughout the institution: they form the foundation of a basic financial literacy that every college and university should foster across its faculty and staff.
What is financial literacy?
Financial literacy is the ability to understand where an institution stands at any given time with respect to key elements of its balance sheet and income statement. To state it simply, financial literacy means an understanding of the vital signs that describe the financial health of the institution. In medicine, the basic vital signs are body temperature, pulse rate, respiration rate, and blood pressure. In finance, the vital signs include measures of unrestricted cash, revenue, expenses, debt, and risk.
In medicine, there are professionals whose job is to dig deeper if any of the body’s vital signs are deteriorating. Similarly in finance, it is the job of the CFO and finance team to monitor the vital signs of the institution’s financial health and to seek causes and solutions of current troubles or to use changes in the vital signs to address potential future issues. For most of us—in medicine or finance—the goal should be a basic understanding of what the vital signs measure and whether they point to good health.
There are some key considerations for each financial vital sign:
Unrestricted Cash. The critical question related to unrestricted cash (also termed liquidity) is whether the institution has enough accessible liquidity to meet its daily expenses if its cash flow was unexpectedly interrupted. Days cash on hand is a balance sheet metric that is typically used to assess this issue: days cash on hand literally measures how long unrestricted cash reserves could cover the institution’s operating costs if its cash flow suddenly stopped.
The emphasis on “accessible liquidity” is an important element of this financial vital sign: it speaks to the ability to distinguish between institutional wealth versus liquidity. In higher education, an endowment can be an important source of the institution’s wealth, but many of the funds within an endowment cannot be easily accessed—they are, by and large, not liquid funds or are highly restricted as to their use. Readily available, unrestricted cash reserves are what an institution must rely on to meet its day-to-day expenses should cash flow be interrupted or reduced.
Revenue. Because an institution needs to maintain or grow its cash reserves and allocate them sparingly, the amount of revenue coming in—from tuition and fees and from other sources of additional income (see below)—is also an important vital sign. An institution should obviously be taking in enough revenue to cover its expenses without drawing on its cash reserves.
Additionally, however, given continued growth in expenses, revenue growth (through enrollment growth, student mix, and/or program mix) is a significant measure of ongoing vitality.
Financial health is also enhanced if an institution does not rely too heavily on a single revenue source. For schools with an endowment, for example, the amount of income the endowment can generate to support operations is an important source of additional income. More generally, additional income can come from such auxiliary revenue sources as residential fees, fundraising, special events, concessions, and a host of other sources. These additional revenue sources, while potentially small on an individual basis, can be material on a cumulative basis.
Expenses. How much does it cost to produce the education that a college or university provides to its students? If that cost is approaching—or worse, surpassing—the net tuition revenue and additional income that the institution brings in, what is being done—or could be done—to reduce those costs? Expenses are perhaps most similar to body temperature in medical vital signs; if they get too high, they must be brought down before the health of the institution begins to decline. And the measure of expenses should be viewed overall for the institution as well as on a per student basis to communicate the “value” of different student types to the organization.
Debt. Debt is an essential component of the funding of significant capital projects that colleges and universities must undertake to maintain updated and competitive facilities. Just as most people need to take out a mortgage to afford a home purchase—spreading the cost of the home over a multiyear payment period—so too do institutions often need debt to finance large capital expenditures. But the amount of debt (also termed “leverage”) can also be an indicator of the institution’s financial health. That health begins to decline if the amount of debt relative to an institution’s assets or annual income grows too large, or if the amount required to pay for the debt (i.e., to meet the scheduled principal and interest payments—the debt service) puts too much of a burden on the cash flow generated from the institution’s day-to-day operations. If the debt service becomes too high relative to cash flow, the institution may face onerous legal requirements, or even default, which may severely constrain its ability to provide the range of programs desired and expected by its student population.
Risk. Risk is an indicator that identifies potential weaknesses in any of the preceding indicators that could jeopardize the institution’s financial health. For basic financial literacy, only the most significant risks need to be identified: over-reliance on tuition revenue in a market with declining enrollments, for example, or over-reliance on endowment income in the event of market instability. Once an institution consistently measures its risks, it can begin to determine what level of risk is appropriate and address strategies to manage that risk.
Why does financial literacy matter?
Promoting financial literacy throughout an institution cultivates a common understanding of financial health that provides context for leadership’s decisions and a common language to address issues. If tuition revenue is declining, for example, financially literate faculty members should better understand the need to prioritize academic programs that not only meet the academic needs of their students, but also can draw more students or produce healthier margins. If cost-cutting measures are required to reduce expenses, financially literate staff should understand the genesis of the need for reductions and why the institution cannot simply draw on its endowment to close the gap. Furthermore, acknowledging and describing the most significant risks an institution faces using a common language makes clear the need for action if one or more of those risks begins to materialize.
Financial literacy is also an important tool for cultivating the next generation of faculty leaders. When faculty members rise to leadership positions, it is essential that they understand that academic growth and strategic initiatives cannot succeed without sufficient resources to support them, or if they cannot generate the revenue needed to cover—or exceed—their costs.
By promoting financial literacy across the institution, the institution can help ensure that future leaders are acquiring the foundation needed for them to grow into informed decision-makers who understand the need to maintain the institution’s financial health.
However, the nonprofit provider and health plan warned subsequent quarters may be less profitable as expenses are projected to climb.
Dive Brief:
Nonprofit hospital and health plan giant Kaiser Permanente reported a $7.4 billion net gain for the first quarter ended March 31, compared to an income of $1.2 billion reported in the same period last year.
The Oakland, California-based operator’s earnings were boosted by its completed acquisition of Geisinger Health, which netted Kaiser a one-time operating gain of $4.6 billion.
Kaiser reported a quarterly operating margin of 3.4%, but noted the first quarter tends to be its strongest due to the timing of the open enrollment cycle. Kaiser predicts revenues will remain steady during subsequent quarters but expenses will likely rise.
Dive Insight:
Kaiser operates 40 hospitals, according to its website, and serves nearly 12.6 million health plan members as of the first quarter.
During the quarter, Kaiser subsidiary Risant Health — a nonprofit health network created last year to independently buy and operate other nonprofit health systems — completed its purchase of Geisinger Health. Kaiser received a one-time payment, boosting earnings. Net income for the quarter excluding the Geisinger transaction was $2.7 billion.
Kaiser increased its operating income year over year by more than 300% to total $935 million. Still, the nonprofit provider said that figure fell short of income logged prior to the pandemic.
Continued cost pressures from high utilization, care acuity and rising prices of goods and services drove quarterly expenses up 6% year over year to total $26.5 billion.
Kaiser has conducted at least three rounds of layoffssince the fall. It most recently cut 76 employees at the beginning of this month, a spokesperson confirmed to Healthcare Dive.
The cuts were done to “reduce costs across our organization,” and primarily impacted information technology and marketing roles, the spokesperson said via email.
Kaiser is not on a hiring freeze, the spokesperson noted. The organization has increased headcount by 5% since 2022 and has open positions currently listed online.
The Wall Street Journal also reported this weekend that Kaiser is attempting to sell $3.5 billion of its private investment holdings due to liquidity issues, citing sources familiar. Kaiser may attempt to sell further holdings later in 2024, according to the report.
Kaiser did not respond to requests for comment by press time about the possible sale.
Medicare Advantage insurers are planning to pare down their plan offerings in 2025.
Facing lower reimbursement rates from CMS and higher medical costs, many plan executives said they will prioritize margins over growing their membership numbers.
Brian Kane, CEO of Aetna, told investors May 1 that the company will prioritize “margins over membership” in 2025. The company will exit counties where it believes it can’t be profitable, Mr. Kane said.
“It’s hard to say right now that we won’t have a meaningful decrease in membership,” Mr. Kane said. “It’s certainly possible.”
Aetna’s competitors will be faced with the same choices, Mr. Kane said.
Humana executives also said the company is eyeing market exits in 2025. Susan Diamond, Humana’s CFO, said the company is expecting a net decline in its MA membership next year.
“Whether that is incrementally larger or smaller based on the other plans will be very dependent on what we see across the competitive landscape,” Ms. Diamond said April 24.
On first-quarter earnings calls, payer executives told investors they are disappointed in CMS’ 2025 rate notice. The notice will decrease benchmark payments, which insurers say amounts to a cut in funding for the program.
Medical costs are also on the rise in Medicare Advantage. CVS Health told its investors that Medicare Advantage costs keep climbing, partly driven by seasonal inpatient admissions. Outpatient services, including mental health and pharmacy, and dental spending also increased costs, CVS said.
In its final rate notice published April 1, CMS said it was aware Medicare Advantage organizations were reporting rising costs but was “not aware of all of the specific drivers accounting for the experience of these MA organizations. We have reviewed incomplete fourth quarter 2023 Medicare FFS incurred experience and it is consistent with our projections.”
Payers have also said they will cut back on supplemental benefits to account for lower rates.
CVS Health CEO Karen Lynch said it wil adjust plan-level benefits in 2025. The company led the industry in growth in 2024 but was a “notable outlier” compared to its peers in adding on supplemental benefits to entice members, The Wall Street Journalreported May 1.
Some Aetna plans offer a fitness reimbursement, according to The Wall Street Journal. Members could cash in the benefit for pickleball paddles, golf clubs and other sports equipment — but these extras could be a thing of the past in a tougher rate environment.
While every payer criticized CMS’s proposed rates, some executives said they would hold off on discussing their specific strategy until final bids are due. Insurers must send their MA plan proposals for 2025 to CMS by early June.
“It’s too early to provide specifics for the 2025 bid at this stage,” Elevance Health CEO Gail Boudreaux told investors. “I’m going to repeat, we’re looking to really balance growth and margins.”
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.
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.
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.
Some health systems have recovered from the pandemic much better than others, and those with healthier margins tend to be the ones that made a stronger push into outpatient care.
By the numbers:
There’s a wildly large and growing difference between the operating margins of top-performing health systems and those at the bottom, according to Kaufman Hall data shared with Axios. (Go deeper on their analysis.)
“The hospitals that are not performing well are performing worse, but the hospitals that are recovering are performing extremely well,” firm co-founder Kaufman told Axios.
“I would say hospitals that are not doing particularly well … they’re not capturing that outpatient work, or at least not at the level that they need to,” he added.
Yes, but:
Operating margin is only one measure of a hospital’s financial health, and total margins are often much higher, said Anderson, the Johns Hopkins professor.
“You diversify where there is potential profit, and they have moved into all sorts of things where there is profit,” he added.“They have a whole portfolio of ways to make money now that they didn’t have 20 years [ago].”
Some experts also say that hospitals aren’t disciplined about keeping costs down.
“I think partly what happened over time is that … investments were not treated as investments, but as costs,” said Cooper, the Yale economist.
HENRY KOTULA 