Earthquake regulations may rock S&P ratings for California hospitals

https://www.beckershospitalreview.com/finance/earthquake-resistance-regulations-may-rock-s-p-ratings-for-california-hospitals.html?origin=cfoe&utm_source=cfoe

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Achieving full compliance with rules to make their facilities operational after an earthquake by 2030 could strain ratings for many California acute care hospitals and health systems, S&P Global Ratings said in a new report.

California law requires hospitals to upgrade buildings to reduce their risk of collapse during earthquakes by 2020 and to remain operational after an earthquake occurs by 2030. The 2030 rules include structural and nonstructural components.

S&P said most organizations have met the 2020 seismic compliance deadline, but many will face challenges as they invest in achieving full seismic compliance by 2030.

“As many rated California providers invest in the next round of compliance, they will have ongoing capital expenditures, although for some organizations it will likely be less than the updates leading up to the 2020 deadline,” the ratings agency wrote. “Nevertheless, many will face mandated capital spending that will compete with other strategic priorities, and many will face potential operating challenges related to making nonstructural updates while minimizing patient care disruption.”

S&P — which based its analysis on more than 40 rated California-based acute care hospitals and health systems as of Dec. 31, 2018 — said it believes most of the California hospitals and health systems it rates, especially those with higher ratings, should be able to absorb the capital spending and operating expenses related to achieving full seismic compliance by 2030.

However, full compliance by 2030 could be difficult for providers with lower ratings that already have challenges related to accessing capital at a reasonable cost, said S&P.

“Moreover, the additional potentially prohibitive costs for this next round of compliance needs, combined with ongoing industry pressures, could contribute to some shifting strategies, such as mergers and acquisitions, rebalancing of strategic priorities, and potentially closures for those hospitals without the means to finance the project and absorb increased expenses,” the agency wrote.

Access S&P’s full report here.

 

 

Hedge fund manager predicts CHS will go bankrupt

https://www.beckershospitalreview.com/finance/hedge-fund-manager-predicts-chs-will-go-bankrupt.html

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Firefly Value Partners Co-Founder and Portfolio Manager Ryan Heslop is bearish on Franklin, Tenn.-based Community Health Systems, according to Reuters.

Mr. Heslop, who was one of several hedge fund managers to present May 6 at the Ira Sohn Investment Conference in New York, announced a short position in CHS during the conference.

He said CHS will likely go bankrupt over the next few years due to rising debt costs and dwindling revenue per hospital bed. 

The company’s “pile of debt and the declining profitability of hospitals make it almost certain that this patient will die,” Mr. Heslop said, according to Reuters.

CHS didn’t immediately respond to Reuters’ request for comment.

During the conference, other discussions about for-profit hospital operators were positive. Glenview Capital Management Founder and CEO Larry Robbins said he’s bullish on hospitals overall, and owning stock in Nashville, Tenn.-based HCA Healthcare, King of Prussia-based Universal Health Services and Dallas-based Tenet Healthcare is a wise decision, according to Barron’s.

 

 

Judge Rules 340B Cuts Unlawful, Decision Applauded by Industry Stakeholders

https://www.healthleadersmedia.com/finance/judge-rules-340b-cuts-unlawful-decision-applauded-industry-stakeholders?spMailingID=15621129&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1640683769&spReportId=MTY0MDY4Mzc2OQS2

A federal judge reaffirmed his view that the cuts by HHS to the discount drug program are unlawful.

KEY TAKEAWAYS

In a joint statement, three hospital plaintiffs urged HHS to follow the judge’s directive.

340B Health added their approval in a statement, asking the agency to “act quickly.”

A status report regarding HHS’ progress remedying the situation must be submitted to U.S. District Court Judge Rudolph Contreras by August 5.

U.S. District Court Judge Rudolph Contreras again ruled Monday evening that the 340B drug reimbursement rate that Health and Human Services set in the 2019 Outpatient Prospective Payment System (OPPS) rule is unlawful, a decision that earned praise from various industry stakeholders. 

Five months after first vacating the 22% cut in 340B payments that HHS Secretary Alex Azar proposed late last year, Contreras reiterated that the cuts were implemented “in contravention of the Medicare Act’s plain text.”

Medicare Part B will sell prescription drugs to hospitals participating in the program at the average selling price plus 6%, well above the average selling price minus 22.5% as HHS had proposed.

“The Court also concludes that, despite the fatal flaw in the agency’s rate adjustments, vacating HHS’ 2018 and 2019 rules is not the best course of action, given the havoc vacatur may wreck on Medicare’s administration,” Contreras wrote in the 22-page ruling.

HHS will have “first crack” at crafting appropriate remedies for the two rules, according to the ruling.

Tuesday, three hospital plaintiffs applauded the ruling as a positive development for the embattled federal program, which has been deemed wasteful and rife with abuse by critics who demand additional oversight and accountability.

“America’s 340B hospitals are pleased with the District Court’s decision and urge HHS to follow the judge’s directive to promptly resolve the harm caused by its unlawful cuts to Medicare reimbursement for certain 340B hospitals,” the American Hospital Association, Association of American Medical Colleges, and America’s Essential Hospitals said in a joint statement. “The ruling reaffirmed that the 2018 cuts were unlawful and extended that ruling to the 2019 cuts. Owing to the complexity of the Medicare program, the judge gave HHS first crack at fashioning a remedy for its unlawful actions. He also asked for a report from HHS on its progress on or before August 5, 2019. We urge HHS to promptly comply with the judge’s ruling and restore to 340B hospitals all funds that have been unlawfully withheld.”

HHS has not issued a statement regarding Monday’s ruling and did not respond to a request for comment by time of publication. 

The December ruling by Contreras did have a material impact on nonprofit hospitals, according to Moody’s Investor Service, which determined in early January that the reversion of the cuts would lead to improved operating performance.

340B Health, an advocacy group for the federal program, also issued a statement Tuesday afternoon applauding Contreras’ ruling.

“On behalf of the nearly 1,400 hospitals we represent that participate in 340B, we are pleased that the court has, once again, found that HHS exceeded its statutory authority by cutting what Medicare pays for outpatient drugs delivered to their patients,” Maureen Testoni, CEO of 340B Health, said in a statement. “The cuts made in 2018 and again in 2019 have reduced hospitals’ ability to care for those in need. The sooner this policy is reversed, the better hospitals will be able to serve the needs of patients with low incomes and those in rural communities. HHS must act quickly, as any further delay will only harm patients and the hospitals they rely on for care.”

Nearly 2,500 hospitals currently participate in the 340B Drug Pricing Program, which was created in 1992 to assist safety-net and low-income providers purchase prescription drugs.

A status report regarding HHS’ progress remedying the situation must be submitted to Judge Contreras by August 5. 

 

 

The Financial Impact of Medicare for All on Hospitals

 

 

With all of the focus on M4A recently, in its many permutations, we’re hearing a growing concern among hospital executives and physician leaders that their economics could be in serious peril. (For more on this, see the below anecdote from “on the road”.) That concern is justified, as you can see from the graphic below.

On the left, we show data on payment-to-cost ratio for hospitals since the start of the 2000s. As you can see, hospitals rely heavily on a cross-subsidy model—Medicare and Medicaid reimbursement covers only 86 to 88 percent of the total cost of inpatient care delivery. Hospitals make up this difference, and generate a positive margin, by negotiating rates for commercially-insured patients that cover almost 145 percent of costs. As health systems have consolidated and built negotiating leverage, that percentage has steadily risen over the past several years, more than offsetting losses on publicly-insured patients.

The problem? Those lucrative commercial patients only account for a third of admissions, as shown at the bottom right. And across the past decade and a half, commercial admissions have dropped by more than 20 percent. In other words, hospitals have been consolidating and raising commercial rates on a declining book of business in order to compensate for underpayment on a growing volume of government-paid cases.

Now imagine that the commercial business disappeared entirely, and you can see what would happen—hospital finances would crater. Under M4A, Medicare rates would have to go up substantially to make up for the lost margin on commercial cases. Even if M4A turned out to be “Medicare Advantage for More”, trading commercial admissions (say, for the 55-65 population) for MA admissions (which are generally paid at Medicare FFS rates), this would create a difficult situation for hospitals.

In our view, this economic reality is not getting discussed enough in the current debate over M4A

 

9 hospitals with strong finances

https://www.beckershospitalreview.com/finance/9-hospitals-with-strong-finances-040819.html?origin=cfoe&utm_source=cfoe

Here are nine hospitals and health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service and Fitch Ratings.

1. South Bend, Ind.-based Beacon Health System has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile, and is the acute care leader in its market, according to Fitch.

2. Los Angeles-based Cedars Sinai Medical Center has an “AA-” rating and stable outlook with Fitch. The hospital has a solid market presence in a competitive service area and strong profitability and liquidity, according to Fitch.

3. St. Cloud, Minn.-based CentraCare Health has an “AA-” rating and stable outlook with Fitch. The health system has a strong operating risk profile and a leading market position over a broad service area, according to Fitch.

4. Wauwatosa, Wis.-based Children’s Hospital and Health System has an “Aa3” rating and stable outlook with Moody’s. The health system has a strong financial profile and is the dominant provider of tertiary and quaternary pediatric services in southeastern Wisconsin, according to Moody’s.

5. Children’s Hospital of Philadelphia has an “Aa2” rating and stable outlook with Moody’s. The hospital has a strong market position and exceptional financial resources to support high capital needs, according to Moody’s.

6. Concord (N.H.) Hospital has an “AA-” rating and stable outlook with Fitch. The hospital has a strong financial profile and a leading market share position, according to Fitch.

7. Portland-based Oregon Health and Sciences University has an “Aa3” rating and stable outlook with Moody’s. The health system has solid operating performance, strong clinical offerings and includes the only academic medical center in Oregon, according to Moody’s.

8. Clermont, Fla.-based South Lake Hospital has an “AA-” rating and stable outlook with Fitch. The hospital’s operating performance has improved in recent years due to its partnership with Orlando (Fla.) Health, according to Fitch.

9. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The system’s strong brand and position as the only academic medical center in Iowa will continue to translate into strong market share and high patient demand, according to Moody’s.

 

Nicklaus Children’s Hospital to freeze wages, lay off staff

https://www.beckershospitalreview.com/finance/nicklaus-children-s-hospital-to-freeze-wages-lay-off-staff.html

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Miami-based Nicklaus Children’s Hospital is making cutbacks in response to industry pressures, including dwindling reimbursement, according to the Miami Herald.

Nicklaus Children’s executives outlined the cutbacks in a memo to staff obtained by the Miami Herald. The hospital will eliminate pay raises for all employees this year, limit the number of new hires and reduce pension contributions, according to the report.

These cutbacks could create significant savings for Nicklaus Children’s, which has roughly 3,500 workers. Labor costs make up 57 percent of the hospital’s operating expenses, according to the report.

The letter to staff also said it is necessary for Nicklaus Children’s to reduce the size of its workforce to lower operating expenses.

In a written statement to the Miami Herald, a hospital spokesperson said the cutbacks and layoffs will help preserve the hospital’s financial position in the face of several industrywide challenges, including “reductions in reimbursement … a shift from inpatient services to outpatient care, and financial pressures due to rising costs and increased competition.”

Access the full Miami Herald article here.

 

 

14 hospitals with strong finances

https://www.beckershospitalreview.com/finance/14-hospitals-with-strong-finances-021219.html?origin=rcme&utm_source=rcme

Here are 14 hospitals and health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.

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

1. 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. Los Angeles-based Cedars-Sinai Medical Center has an “Aa3” rating and stable outlook with Moody’s. The hospital has strong margins, excellent balance sheet metrics and a strong reputation locally and nationally for patient care and research, according to Moody’s.

3. 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.

4. 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.

5. 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.

6. 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.

7. Midland County (Texas) Hospital District has an “Aa3” rating and stable outlook with Moody’s. The district, which was created to operate a hospital in the county, has a manageable debt load, a modest pension liability and the ability to produce strong operating margins, according to Moody’s.

8. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. Moody’s expects that the health system’s operating model and comprehensive IT systems will enable it to execute growth strategies while maintaining strong margins.

9. Winston-Salem, N.C.-based Novant Health has an “Aa3” rating and stable outlook with Moody’s. The credit rating agency expects Novant to continue generating strong cash flow margins in favorable markets.

10. Boston-based Partners HealthCare has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. The health system has an excellent reputation in the clinical and research spaces, a long track record of fundraising, and adequate balance sheet measures, according to Moody’s.

11. 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.

12. 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.

13. 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.

14. Yale New Haven (Conn.) Health has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading market position in Connecticut, with a broad reach for tertiary and quaternary patients from throughout the state, and strong brand recognition, according to Moody’s.