The nonprofit health system narrowed its operating loss while continuing to grapple with financial and policy pressures as it progresses towards profitability.
KEY TAKEAWAYS
Providence cut its operating loss in the second quarter to $21 million, improving from a $123 million loss a year ago.
Revenue rose 3% year-over-year to $7.91 billion, driven by higher patient volumes and better commercial rates.
The health system faces ongoing “polycrisis” challenges, including rising supply costs, staffing mandates, insurer denials, and looming Medicaid cuts, which have already prompted layoffs, hiring pauses, and leadership restructuring.
Providence made promising strides toward financial sustainability in the second quarter as higher patient volumes helped trim an operating loss that has weighed heavily on its balance sheet.
Yet the Renton, Washington-based health system warned that a compounding set of external pressures, which it labeled a “polycrisis,” still poses formidable challenges to its mission and future.
For the three months ended June 30, the nonprofit reported an operating loss of $21 million, equating to an operating margin of –0.3%, representing a marked improvement from the $123 million loss (–1.6%) posted over the same period in 2024. Compared with the previous quarter, the gain was even starker as Providence trimmed its deficit by $223 million. Through the first six months of the year, the health system had an operating loss of $265 million (-1.7%).
Revenue growth was fueled by higher patient volumes and improved commercial rates, Providence highlighted. Operating revenue rose 3% year-over-year to $7.91 billion as inpatient admissions (up 3%), outpatient visits (up 3%), case mix–adjusted admissions (up 3%), physician visits (up 8%), and outpatient surgeries (up 5%) all contributed.
On the expense side, Providence managed a 2% rise in operating costs to $7.93 billion, thanks largely to productivity gains, including a 43% reduction in agency contract labor. However, supply costs swelled by 9% and pharmacy expenses jumped by 12% year-over-year.
Providence, along with the healthcare industry at large, faces what CEO Erik Wexler called a “polycrisis” due to a mix of inflation, tariff-driven supply pressures, new state laws on staffing and charity care, insurer reimbursement delays and denials, and looming federal Medicaid cuts, especially from the One Big Beautiful Bill Act, which the health system said “threatens to intensify health care pressures.”
Those factors are significantly influencing hospitals’ and health systems’ decision-making. Providence has made staffing adjustments that include cutting 128 jobs in Oregon earlier this month, a restructuring in June that eliminated 600 full-time equivalent positions, apause on nonclinical hiring in April, and leadership reorganization since Wexler took over as CEO in January.
Accounts receivable is another area that has been indicative of headwinds, with Providence noting that while it improved in the second quarter, it “remains elevated compared to historical trends.”
Even with the roadblocks in its path, Providence is working towards profitability after being in the red for several years running.
“I’m incredibly proud of the progress we’ve made and grateful to our caregivers and teams across Providence St. Joseph Health for their continued dedication,” Wexler said in the news release. “The strain remains, especially with emerging challenges like H.R.1, but we will continue to respond to the times and answer the call while transforming for the future.”
For the past six years, Kaufman Hall has been publishing its monthly National Hospital Flash Report, which is designed to provide a pulse on the health of the healthcare industry and to highlight meaningful and pertinent trends for hospital and health system leaders. The data that powers the report is taken from over 1,300 hospitals, which are reflective of all geographic locations, hospital sizes and types. To ensure the content is digestible and understandable, Kaufman Hall aggregates the data into larger cohorts and measures a select set of key metrics that are most important for understanding the health of the industry. Industry groups and system leaders use these reports both for peer review purposes but also to paint an overall story for their boards and communities.
Through a detailed review of the Flash Report data, each month Kaufman Hall develops findings that healthcare leaders may find instructive as they determine how to adjust to changing market conditions. In 2024 it was reasonably obvious that there was a widening divide between the highest performing hospitals and the lowest performers.While a significant cadre of hospitals and health systems have recovered to pre-Covid financial success, 37% of American hospitals continue to lose money.
We are often asked what the successful hospitals are doing—and importantly—what the data tell us about those that are less successful. Using 2024 data, we have drawn two important conclusions around the role of leading management teams and what separates their organizations from others.
These teams have:
A sophisticated and balanced approach to the management of departmental performance: and
An understanding of the management of shared service costs.
A sophisticated and balanced approach to the management of departmental performance
It turns out that current data demonstrate that the management of departmental performance is critical to overall hospital financial performance but in a more nuanced manner than expected.
Our analysis was conducted as follows:
First, we looked at data across hospitals nationwide to understand the difference in departmental performance between top and bottom performing hospitals.
Second, we ranked each department in a hospital from 0 to 100, with 100 representing the best performance based on expense per unit of service.
Third, we then grouped all hospitals based on their bottom-line operating margin into three cohorts: those hospitals that fell into the bottom quartile of financial performance, those between the bottom and top quartile, and those in the top quartile.
Finally, we created a histogram of the average composition of departmental performance across each of the three margin cohorts.
The findings demonstrate that organizations with top financial performance have departmental results that look like a normal curve around the median. Said more simply, in top-performing hospitals the number of lower-performing departments is roughly equal to the number of higher-performing departments, with most departments operating near the national departmental medians. In contrast, hospitals with the lowest financial performance show a much greater number of departments operating with high cost per units of service and a few departments that operate extremely efficiently.
It appears that poorer performing hospitals focus on the management of the largest clinical and nursing areas. These are the departments that tend to be the “easiest” to manage because they are the “easiest” to benchmark. But the data show that these same hospitals tend to have poor performance over the remainder of the departments, which leads to poor financial results for the total hospital.
Hospitals with top quartile financial performance tend to manage all departments as close to the benchmark median as possible. Such a result means spending more managerial time on the harder to manage departments, especially those departments that are more “unique” and where overall performance is harder to characterize and benchmark.
The observations that can be drawn here are important and as follows:
First, oversight and management of individual departments is critical to the financial success of the entire hospital or system.
Second, the overall organizational structure of departmental administration is critical as well. The more complicated your departmental structure and the more individual departments you maintain and administer, the more difficult it will be to manage a majority of departments to “median” results.
The data suggest a perhaps unexpected operational conclusion. The achievement of median national departmental benchmarks is leading to overall positive hospital financial operating margins. This outcome offers significant budgeting advice and over the course of a fiscal year should prove to be a remarkably useful administrative lesson.
Understanding the management of shared service costs
Given the growing costs of shared services and related overhead, Kaufman Hall wanted a closer look at how well hospital organizations were scaling shared service costs related to the organization’s size. Unexpectedly, shared service costs were not highly correlated to the size of the hospital or hospital system. This suggests that the management of shared service costs on a per unit basis is difficult and that this aspect of expense management requires diligent focus to enact and sustain cost change. Our data often indicates a wide variation of cost performance among shared services of similar types within different large organizations. This suggests that standardization of such services is not well developed and that there may be a certain level of wishful thinking that increases in organizational size will automatically correlate to lower per unit costs.
The data did indicate, however, that larger organizations can achieve higher performance over smaller organizations relative to shared service expenses. This is an indication that size can be leveraged for superior performance but that such results are not automatic. The takeaway here is that the total spend for shared service functions is very substantial and growing. In that regard, it is most important to proactively address expenses in these areas, build appropriate management plans, and understand how to focus on the right buttons and levers. To the extent that organizations are assuming that growth (both organic and inorganic) will create economies of scale with the overall shared service apparatus, the data demonstrate that such an outcome is possible but only with strong planning and execution.
Operating hospitals in 2025 is flat-out hard and likely to get harder over the year. Hospital executives right now should use every managerial advantage available. A close look at the National Hospital Flash Report data identifies important relationships that provide for a more nuanced and sophisticated operation of both individual departments and the bundle of shared services. The data clearly demonstrate that better results in both these areas will lead to improved financial performance within the hospital overall. The data also indicate key managerial strategies that will lead to such improvement.
In late 2023, S&P Global and Fitch Ratings viewed the not-for-profit (NFP) hospital sector as negative or deteriorating, reflecting the difficult financial position many were in following the pandemic.
In recent weeks, S&P and Fitch upgraded their 2025 sector outlook for NFP hospitals to stable and neutral respectively, joining Moody’s Ratings, which held stable from last year.
This week’s graphic illustrates the rating agencies’ latest views on NFP hospitals, which point to a promising but uneven recovery for the industry.
Overall, the reports detail that stronger balance sheets, solid revenues, and improved demand have reduced the likelihood of covenant violations and strengthened NFP hospitals’ positions.
However, challenges persist that could impede further progress. The labor market, payer environment, antitrust enforcement, and a new administration all present complications for the continued recovery of NFP hospitals. Nonetheless, the reports indicate significant improvement for the industry since the post-pandemic ratings downturn.
Fitch’s report noted that the share of NFP hospitals with a stable outlook has reached a three-year high. Meanwhile, S&P reported that there are now almost twice as many NFP hospitals with favorable outlooks compared to unfavorable ones, a dramatic flip from 2023, which had a 3.1:1 ratio of unfavorable to favorable outlooks.
These ratings changes reflect the hard work put in by NFP hospitals across the country to improve their financial performance and find new ways to serve their communities sustainably.
However, the recovery remains “shaky” and incomplete, and hospitals still face a long road ahead as they reconfigure to a new normal.
Walgreens Boots Alliance is considering selling all of its VillageMD primary care clinics, according to a filing with the Securities and Exchange Commission.
The company is evaluating options in light of ongoing investments into VillageMD and its substantial ongoing and expected future cash requirements, Walgreens said in the August 7 filing.
“These options could include a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities,” Walgreens said.
WHY THIS MATTERS
Walgreens has been facing financial pressure due to a changing retail environment and increased regulatory and reimbursement challenges on the pharmacy end, according to its Q3 earnings report from June.
VillageMD, as well as some other pharmacy clinics, have faced the challenge of making the clinics a scalable solution.
On August 5, Walgreens Boots Alliance stock hit a 52-week low of $10.62, according to Seeking Alpha. Year to date, shares are down about 59%.
In the recent SEC filing, Walgreens acknowledged the existence of defaults under the VillageMD Secured Loan. On January 3, 2023, Walgreens had provided VillageMD senior secured credit facilities in the aggregate amount of $2.25 billion. This consisted of a senior secured term loan in an aggregate principal amount of $1.75 billion and a senior secured credit facility in an aggregate original committed amount of $500 million.
Walgreens is actively engaged in discussions with VillageMD’s stakeholders and other third parties with respect to the future of its investment in VillageMD, it said.
On August 8, Walgreens announced the pricing of an underwritten public offering of senior unsecured notes consisting of $750M aggregate principal amount of 8.125% notes due 2029. The sale of the notes is expected to close on August 12.
WBA said it intends to use the net proceeds from the offering, together with cash on hand, for the repayment and/or retirement of its outstanding 3.800% notes due 2024, and to use any remaining amounts for general corporate purposes.
On August 1, WBA announced it had sold all of its remaining unencumbered shares of Cencora, a drug wholesale company, for $818 million, and, subject to the completion of the sale, a concurrent share repurchase by Cencora in the amount of $250 million.
Proceeds will be used primarily for debt paydown and general corporate purposes, as the company continues to build out a more capital-efficient health services strategy rooted in its retail pharmacy footprint, Walgreens said.
THE LARGER TREND
During the Q3 earnings call on June 27, CEO Tim Wentworth said the company intended to reduce its stake in VillageMD. This was part of a strategy announced earlier in the year to close unprofitable VillageMD clinics in order to cut $1 billion in costs.
Walgreens also announced at that time plans to shutter up to 25% of its retail stores that were unprofitable.
Kaiser Permanente showed year-to-year financial improvement in Q2, reporting an operating income of $908 million (up from $741 million in Q2 2023), and an operating margin of 3.1% (up from 2.9% a year ago).
The news comes months after Kaiser Foundation Health plan reported a data breach affecting over 13 million people. Certain online technologies, previously installed on its websites and mobile applications, may have transmitted personal information to third-party vendors Google, Microsoft Bing and X (Twitter) when members and patients accessed its websites or mobile applications, the health system said in April.
Despite that hardship, Kaiser Foundation Health Plan, Kaiser Foundation Hospitals and assorted subsidiaries and affiliates reported operating revenues of $29.1 billion and operating expenses of $28.2 billion, compared to operating revenues of $25.2 billion and operating expenses of $24.4 billion in the same period last year.
According to Kaiser, favorable financial market conditions drove other income (net of other expense) of $1.2 billion in the second quarter of 2024. Other income Q2 2023 was $1.3 billion. For the second quarter of 2024, net income was $2.1 billion, identical to last year.
Kaiser’s financial results in the second quarter include Geisinger, which joined subsidiary Risant Health on March 31.
WHAT’S THE IMPACT?
Kaiser said that it typically experiences higher operating margins in the first half of the year due to the annual enrollment cycle. Lower operating margins in the second half of the year are not uncommon, because expenses usually increase, in part due to the impact of seasonal care, while revenues stay relatively flat.
Kaiser Permanente membership was more than 12.5 million as of June 30, while membership for Risant Health affiliates was nearly 552,000.
Capital spending in the second quarter was $889 million, compared to $824 million in the same period of the prior year, as the organization continued to invest strategically in facilities and technology.
Though Kaiser logged a strong Q2, in May it announced plans to sell up to $3.5 billion of holdings in private-equity funds due to cash constraints, according to unnamed sources in The Wall Street Journal. Kaiser is reportedly working with investment bank Jefferies Financial Group to offload up to $3.5 billion of stakes to secondary buyers.
However, a Kaiser spokesman said at the time, “None of our decisions have been driven by liquidity needs; we maintain liquidity that is appropriate for a AA- rated organization. We will continue to make prudent, thoughtful investment decisions.”
THE LARGER TREND
Kaiser’s Q1 financial results showed operating income of $935 million, compared to $233 million for Q1 2023.
In March, Kaiser Permanente and Town Hall Ventures said they would be launching an organization called Habitat Health, which is designed to help older adults overcome the challenges of aging at home. Operating as a Program of All-Inclusive Care for the Elderly, Habitat Health is designed to help participants live independently in their homes, with comprehensive care the companies say will lead to better health outcomes.
Habitat Health plans to begin serving older adults in Sacramento and Los Angeles in 2025, and will aim to keep low-income participants in their homes to receive personalized support.
Some of America’s largest hospital systems saw their financials soar in the first half of 2024. And yet, more than 700 facilities across the country still are at risk of closing.
Why it matters:
It’s a familiar tale of the rich getting richer, as big, mostly for-profit health systems see improved margins while smaller facilities in outlying areas are barely hanging on.
That could worsen access for some of the most vulnerable Americans — and hasten consolidation in an industry that’s been a magnet for M&A.
The big picture:
Health systems with big footprints, including large academic medical centers, have weathered the pandemic and economic headwinds and are seeing margins as good or better than before COVID-19.
Nashville-based industry behemoth HCA Healthcare posted 23% year-over-year profit growth for the quarter, revising its forecast for the rest of the year, projecting it’ll reach as much as $6 billion. It posted a 10% year-over-year increase in revenue.
King of Prussia, Pennsylvania-based Universal Health Services similarly reported a strong quarter, posting nearly 69% growth on its bottom line over the same period last year while Dallas-based Tenet Healthcare reported a 111% jump in its net income over the same quarter last year.
Yes, but:
Smaller nonprofit hospitals, especially in rural areas, that made it through the crisis with the help of government aid are paring services like maternity wards and struggling to stay open.
“There are a lot of hospitals that survived, but their balance sheets are so weakened, their margin for error is basically zero at this point,” said Mike Eaton, senior vice president of strategy at population health company Navvis.
Hospitals that once could manage their expenses and the needs of communities are “going to really struggle to invest in what comes next,” he said.
Between the lines:
The biggest health systems have benefited from less volatility, seeing stabilizing drug prices and more predictable supply chains and labor costs, per a new report from Strata Decision Technology.
“It’s at least something you can manage to,” Steve Wasson, Strata’s chief data and intelligence officer, told Axios.
Revenues already were up thanks to renegotiated contracts health systems struck with payers last year, Wasson said.
There also have been changes on the federal side that boosted Medicare admissions and put some hospitals in line to be reimbursed for billions in underpayments from the 340B drug discount program.
Zoom in:
It’s all translated to operating margins that are up 17% year-to-date compared with the same time period in 2023, according to the latest Kaufman Hall National Hospital Flash Report.
Volumes as measured by hospital discharges per day are up 4% year-to-date.
Expenses per day are also up 6% year to date, including labor (4%), supplies (8%) and drugs (8%), but are far less volatile and thus easier to plan for, said Erik Swanson, senior vice president at Kaufman Hall.
But there’s a growing gulf between the top third of U.S. hospitals, which are seeing outsize growth, and the rest, Swanson said.
Threat level: A new report from the Center for Healthcare Quality and Payment Reform estimated 703 hospitals — or more than one-third of rural hospitals — are at risk of closure, based on Centers for Medicare and Medicaid Services financial information from July. Losses on privately insured patients are the biggest culprit.
“We’re looking at 50% of rural operating in the red. The situation is very challenging,” Michael Topchik, partner at Chartis Center for Rural Health, told Axios.
These smaller hospitals may still be there, but there will continue to be a steady erosion of the kinds of services they offer, such as obstetrics, cancer care and general surgery, he said.
What’s next:
Private equity investment in rural health care is already booming and with it, prospects for service and staffing cuts.
The South generally has the highest concentration of private equity-owned rural hospitals, often with lower patient satisfaction and fewer full-time staff compared with non-acquired hospitals, according to the Private Equity Stakeholder Project.
Congress is ramping up oversight of private equity investments in the sector, though most lawmakers are loath to take steps to actually halt deals.
Portland-based Oregon Health & Science University told staff June 6 that it plans to lay off at least 500 employees, citing financial issues.
“Our expenses, including supplies and labor costs, continue to outpace increases in revenue,” top leaders told staff in a message shared with Becker’s. “Despite our efforts to increase our revenue, our financial position requires difficult choices about internal structures, workforce and programs to ensure that we achieve our state-mandated missions and thrive over the long term.”
Willamette Week was first to report the news, which follows Oregon Health & Science University and Portland-based Legacy Health signing a binding, definitive agreement to come together as one health system under OHSU Health. OHSU Health would comprise 12 hospitals and, more than 32,000 employees and will be one of the largest providers of services to Medicaid members in Oregon.
An Oregon Health & Science University spokesperson told Becker’s more information about the layoffs will be provided in the coming weeks.
In the June 6 message, leaders told staff that “while we work to address short-term financial challenges, we must also plan for an impactful and successful future. We understand that last week’s announcement regarding the Legacy Health definitive agreement, while exciting and potentially transformational, raises questions about how we can afford the required investment in light of our financial situation.”
They added that a capital investment in Legacy “represents a strategic expansion designed to enhance our capacity,” and will be funded by borrowing with 30-year bonds.
“These capital dollars cannot be used to close gaps in our fiscal year 2025 OHSU budget or to pay our members. The OHSU Strategic Alignment and budgetary work would be necessary with or without the Legacy Health integration,” leaders said.
OHSU has planned a town hall next week to further discuss the combination with Legacy.
Leaders said discussions between managers and members about workforce reductions will begin after the annual review and contract renewal process, with additional reductions occurring over the next few months.
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.
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.
HENRY KOTULA 