A robust job market bolstering employer-sponsored plans, Baby Boomers transitioning to Medicare Advantage, and ACA exchanges attracting new payers are good signs for health plans in the coming year.


Consolidations among larger payers makes it harder for smaller players to enter the market or sustain a presence.

Payment reforms around the ACA will continue to drive more cross-sector collaboration among payers and providers.

Despite the uncertainty over the future of the Affordable Care Act, the U.S. health insurance sector remains stable heading into 2019, according to a new analysis by S&P Global Ratings.

“A combination of still-favorable business conditions, financial factors, and diminished near-term legislative uncertainty balances our concerns relating to merger and acquisition activity, elevated policy risk, and re-emergent legal overhang,” said S&P analyst Joseph Marinucci.

Strong job growth is bolstering commercial markets, aging Baby Boomers are driving Medicare Advantage growth, states are shifting their high acuity populations into managed Medicaid, and the ACA exchanges are stabilizing and attracting new competitors, S&P said.

“We assess capital and liquidity as strong or better for most of our rated U.S. health insurers, which supports balance-sheet strength,” Marinucci said. “U.S. health insurers’ operating performance reflects sustained earnings strength and improved earnings quality.”

However, Marinucci said that profitability could moderate somewhat this year.

M&As remain a key rating factor, especially with larger transaction sizes, raising concerns about financial leverage, integration, and cultural compatibility. Consolidations, joint ventures, and partnering among larger insurers are defragmenting the sector, allowing the big insurers to build scale, “and create more touch points as the trend toward consumerism gains traction.”

This is making it harder for newer and smaller players to enter the market or sustain their presence,” S&P said. “As a result, we continue to see larger health insurers taking a bigger share of the marketplace, and smaller players being displaced or struggling to achieve profitable growth as the competitive gap widens.”

“Although the mid-term elections removed a good deal of legislative uncertainty for the industry, policy risk remains elevated given the administration’s preference for ACA alternatives,” S&P said.

In addition, S&P says that payment and delivery reforms mandated in the ACA around value-based care will continue to drive greater cross-sector collaboration among payers and providers.





8 health systems with strong finances


Here are eight hospitals and health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service and Fitch 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. Dallas-based Baylor Scott & White Health has an “Aa3” rating and stable outlook with Moody’s. The health system has strong cash flow margins and its favorable demographics will contribute to volume and revenue growth, according to Moody’s.

2. Orange, Calif.-based Children’s Hospital of Orange County has an “AA-” rating and stable outlook with Fitch. The hospital has a strong financial profile, and Fitch expects its capital-related ratios to improve.

3. Newark, Del.-based Christiana Care has an “Aa2” rating and stable outlook with Moody’s. The health system has solid margins and a robust balance sheet, according to Moody’s.

4. Fort Worth, Texas-based Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The hospital has a strong market position and solid operating performance, according to Moody’s.

5. Durham, N.C.-based Duke University Health System has an “Aa2” rating and stable outlook with Moody’s. The health system is a leading provider of tertiary and quaternary services and has solid margins and cash levels, according to Moody’s.

6. St. Louis-based SSM Health Care has an “AA-” rating and stable outlook with Fitch. SSM has a strong financial profile, and Fitch expects the system to continue growing unrestricted liquidity and to maintain improved operational performance.

7. Appleton, Wis.-based ThedaCare has an “AA-” rating and stable outlook with Fitch. The health system has a leading market share in a stable service area and strong operating performance, according to Fitch.

8. Cincinnati-based TriHealth has an “AA-” rating and stable outlook with Fitch. Fitch expects the health system to maintain good operating ratios leading to liquidity growth.


Fitch: Nonprofit hospital balance sheet metrics improve, operating margins don’t


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U.S. nonprofit hospitals continue to struggle with operating margins, but key balance sheet metrics have improved, according to Fitch Ratings.

Fitch’s 2018 hospital median report, based on audited 2017 data, shows operating margins declined for the second consecutive year in every rating category. The 2017 median operating margin was 1.9 percent compared to 2.8 percent in 2016.

But the agency said key balance sheet metrics, such as days cash on hand, cash to debt and leverage, got better and are at all-time highs. For example, the median days cash on hand climbed from 195.5 in 2016 to 213.9 in 2017, and cash to debt increased to 159 percent from 142.8 percent year over year.
“Despite this apparent contradiction — which may be temporary in nature — the clear signal through the noise is that operating margins remain under pressure for the second year in a row, indicating ongoing stress in the sector,” Fitch said.

The agency said the ongoing operating margin struggles are attributable to salary and wage expense pressures, increasing pharmaceutical costs, and the shift from fee-for-service to value-based care.

Fitch finalized rating criteria changes for nonprofit hospitals revenue debt in January, which focus more on balance sheet strength compared to operating profitability. Even with declining operating margins, Fitch said its median rating for nonprofit hospitals remains ‘A.”

But “should operational pressures continue for an extended period of time, even strong balance sheets will begin to come under pressure,” said Fitch Senior Director Kevin Holloran.



450 hospitals at risk of potential closure, Morgan Stanley analysis finds


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More than 15 percent of U.S. hospitals have weak financial metrics or are at risk of potential closure, according to Business Insider, which cited a recent report from Morgan Stanley.

Morgan Stanley analyzed data from more than 6,000 hospitals and found 600 of the hospitals were “weak” based on criteria for margins for earnings before interest and other items, occupancy and revenue, according to Bloomberg. The analysis revealed another 450 hospitals were at risk of potential closure, according to Business Insider

Texas, Oklahoma, Louisiana, Kansas, Tennessee and Pennsylvania had the highest concentration of hospitals in the “at risk” pool, according to the report.

Industry M&A may be no savior as the pace of hospital closures, particularly in hard-to-reach rural areas, seems poised to accelerate.

Hospitals have been closing at a rate of about 30 a year, according to the American Hospital Association, and patients living far from major cities may be left with even fewer hospital choices as insurers push them toward online providers like Teladoc Inc. and clinics such as CVS Health Corp’s MinuteClinic.

Morgan Stanley analysts led by Vikram Malhotra looked at data from roughly 6,000 U.S. private and public hospitals and concluded eight percent are at risk of closing; another 10 percent are considered “weak.” The firm defined weak hospitals based on criteria for margins for earnings before interest and other items, occupancy and revenue. The “at risk” group was defined by capital expenditures and efficiency, among others.

The next year to 18 months should see an increase in shut downs, Malhotra said in a phone interview.

The risks are coming following years of mergers and acquisitions. The most recent deal saw Apollo Global Management LLC swallowing rural hospital chain LifePoint Health Inc. for $5.6 billion last month. Apollo declined to comment on the deal; LifePoint has until Aug. 22 to solicit other offers. Consolidation among other health-care players, such as CVS’s planned takeover of insurer Aetna Inc., could also pressure hospitals as payers push patients toward outpatient services.

There are already a lot of hospitals with high negative margins, consultancy Veda Partners health care policy analyst Spencer Perlman said, and that’s going to become unsustainable. Rural hospitals with a smaller footprint may have less room to negotiate rates with managed care companies and are often hobbled by more older and poorer patients.

Also wearing away at margins are technological improvements that allow patients to get more surgeries and imaging done outside of the hospital. They are also likely to be forced to pay more to attract and retain doctors in key areas, Bloomberg Intelligence analyst Jason McGorman said.

They “are getting eaten alive from these market trends,” Perlman cautioned.

Future M&A options could be too late — buyers may hesitate as debt laden operators like Community Health Systems Inc. and Tenet Healthcare Corp. focus on selling underperforming sites to reduce leverage, Morgan Stanley’s Zachary Sopcak said.

The light at the end of the tunnel is some hospitals are rising to the occasion, Perlman said. Some acute care facilities are restructuring as outpatient emergency clinics with free-standing emergency departments. “Microhospitals,” or facilities with ten beds or less, are another trend that may hold promise.


Montefiore Health scores $1.2 billion financing deal that will add $600 million to flagship hospital’s balance sheet


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The financing package is a hybrid of taxable and nontaxable bonds that will reimburse the system for more than $350 million in capital projects.

Montefiore Health System has landed a $1.2 billion financing deal with the Dormitory Authority of the State of New York that will add roughly $600 million of cash to Montefiore Medical Center’s coffers.

The bonds issued by DASNY were 30-year revenue bonds that were used to pay down $315 million in prior bonds insured by the Federal Housing Administration, including bonds backed by securities guaranteed by the Government National Mortgage Association. The new bonds issued also reimburse Montefiore for $357 million in past capital project spending on its facilities and take advantage of low interest rates in the market, the system said.

The system confirmed that the revenue bonds were secured by a pledge of gross receipts of Montefiore Medical Center and a mortgage on the Moses Division’s primary care facilities and its two parking garages. The new bonds were used to refinance existing bonds and loans as well as reimburse the health system for prior capital expenditures.

“The financing benefits the system by refinancing front-loaded debt to achieve a more level debt service structure and implements a flexible financing structure that can support future initiatives,” a spokesperson said.

According to a recent report from Moody’s Investors Service, the proceeds of the Series 2018 bonds will be used to refinance existing debt including FHA insured bonds, and will add about $600 million of cash to MMC’s balance sheet.

Moody’s assigned an initial Baa2 rating to Montefiore Obligated Group’s $1.2 billion in revenue bonds, which are a hybrid of both taxable and nontaxable bonds. Moody’s also gave a rating outlook of stable.

“Montefiore Obligated Group’s Baa2 rating reflects Moody’s belief that Montefiore Health System will maintain a leading market position in the Bronx, supported by its clinical excellence and its flagship position as the primary teaching hospital for the Albert Einstein College of Medicine (AECOM). Montefiore’s rating also reflects its experience with value based contracting, which will be aided by integration with its large base of faculty practice and primary care physicians,” Moody’s said.

“With this bond rating, Montefiore can continue our leadership in developing risk-based care and delivering care in the most appropriate settings at the right time. In the rating, Montefiore was noted for its clinical excellence, care, and its ability to attract internationally renowned physician scientists, complementing Albert Einstein College of Medicine’s long history of pioneering medical research,” Montefiore said in a statement.

Moody’s also cautioned that the system’s “keen commitment to its community and surrounding counties” could mean uncertainty, as some of MHS’s affiliated hospitals will experience losses despite state funding. The agency also said the med school’s financial issues will require cash support from Montefiore and unusually high levels of Medicaid and a “heavily unionized” workforce will also strain the system’s margins.

Montefiore is a major medical system in the New York metro area that includes three inpatient campuses with 1,558 licensed beds in the Bronx, as well as several other affiliated organizations in Westchester, Rockland and Orange Counties. Its hospitals include the 292-bed White Plains Hospital, 121-bed Montefiore Mount Vernon Hospital, 223-bed lMontefiore New Rochelle Hospital, 375-bed Nyack Hospital, 242-bed St. Luke’s Cornwall Hospital, and 150-bed Burke Rehabilitation Hospital. Montefiore Medicine Academic Health System is the parent above MHS that controls its Albert Einstein College of Medicine.


Independent monitor to oversee New Jersey hospital’s finances after 4-notch downgrade by Fitch


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New Jersey Gov. Phil Murphy issued an executive order directing the state’s health commissioner to appoint an independent monitor to oversee expenditures and the level of care provided at University Hospital in Newark, N.J.

The action comes after the public hospital’s bond rating was downgraded four notches by Fitch Ratings due to financial difficulties. The hospital also recently received a failing grade on quality of care from the Leapfrog Group and attempted to reduce its pediatric bed count without state approval, according to a press release from Mr. Murphy’s office.

“Given the scope of the problems found at University Hospital, these immediate actions are necessary to ensure the facility can continue providing the highest level of care to the community while it gets its fiscal house in order and improves its healthcare quality,’” said Mr. Murphy.

New Jersey Health Commissioner Shereef Elnahal, MD, appointed Judy Persichilli, BSN, RN, to serve as monitor. Ms. Persichilli is a veteran healthcare executive who most recently served as president of Livonia, Mich.-based CHE Trinity Health.


13 latest hospital credit rating downgrades


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The following nine hospital credit rating downgrades occurred in the last month. They are listed below in alphabetical order.

1. Boone Hospital Center (Columbia, Mo.) — from “A” to “A-” (Fitch)

2. Dignity Health (San Francisco) — from “A” to “A-” (Fitch)

3. El Paso (Texas) County Hospital District — from “AA-” to “A-” (Fitch)

4. Infirmary Health System (Mobile, Ala.) — from “A-” to “BBB+” (S&P)

5. King’s Daughters Medical Center (Ashland, Ky.) — from “A-” to “BBB-” (Fitch)

6. Lafayette (La.) General Health System — from “A-” to “BBB+” (Fitch)

7. Lahey Health System (Burlington, Mass.) — from “A” to “BBB+” (Fitch)

8. Lexington Medical Center (West Columbia, S.C.) — from “A+” to “BB+” (Fitch)

9. MedStar Health (Columbia, Md.) — from “A” to “A-” (Fitch)

10. Parkland Health and Hospital System (Dallas) — from “AA” to “AA-” (S&P)

11. Spartanburg (S.C.) Regional Health Services District — from “A” to “BBB” (Fitch)

12. St. John’s Riverside Hospital (Yonkers, N.Y.) — from “BB-” to “B-” (S&P)

13. University Hospital (Newark, N.J.) — from “BBB” to “BB-” (Fitch)

With the slew of downgrades from Fitch, it is important to note that the agency updated its credit rating criteria Jan. 9, 2018, for U.S. nonprofit hospitals and health systems. Under the updated criteria, the credit agency places a heightened emphasis on leverage and liquidity ratios and also considers operating leases and net pension liabilities debt equivalents.

Fitch reviewed 138 credit ratings, or about half of its portfolio of hospitals and health systems, due to the criteria changes. During the review, 25 hospitals (about 9 percent) were downgraded. Fitch does not believe the slew of downgrades is indicative of a wider, downward trend.