1. Fitch said acute care, nonprofit hospitals experienced across-the-board deterioration of operating margins in 2017, and the trend is expected to repeat this year. But acute care, nonprofit hospitals’ balance sheet metrics, such as days cash on hand, cash to debt and debt to capitalization, are at an all-time high.
2. Amid declining operating margins, large system providers plan to reduce costs and inefficiencies and are rethinking care delivery, according to Fitch Senior Director Kevin Holloran. He said smaller providers face greater challenges because they “are characteristically less able to trim expenses and typically unable to negotiate higher rates from commercial insurers in their markets.”
3. Fitch concluded: “It remains to be seen whether we are at a peak or if there is further room to improve.”
4. However, the ratings agency is certain of one thing: Nonprofit hospital systems will continue to consolidate. Fitch said investors have asked it whether increased size and scale through consolidation is advantageous as far as credit ratings.
“Size and scale are ‘better’ for a hospital’s rating if its enhanced size and scale means improved operations, stronger balance sheets and more market essentiality,” said Mr. Holloran.”Conversely, a hospital getting bigger just for the sake of getting bigger at times can lead to an initial dip in operating profitability as the two or more organizations come together.”
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CHI CEO Kevin Lofton, left, and Dignity CEO Lloyd Dean
Englewood, Colo.-based Catholic Health Initiatives and San Francisco-based Dignity Health have picked a name for the combined system their proposed mega-merger will create: CommonSpirit Health.
“CommonSpirit Health was chosen because of its strong association with the two systems’ missions of service and positive resonance with the diversity of people served,” the systems said in a joint press release. “It evokes the strategic vision and aspiration of the new ministry to advance health for all and make a positive change for the people and communities served; a belief that all people deserve access to high-quality health and healthcare; and a passion to serve those who are sick and injured, including those who are most vulnerable.”
The systems evaluated more than 1,200 names before landing on CommonSpirit Health.
CHI and Dignity signed a definitive agreement to merge in December 2017, and the organizations expect to complete the transaction by the end of this year. The new $28.4 billion health system will include more than 700 care sites and 139 hospitals.