Fitch brightens its view on nonprofit hospitals

https://www.healthcaredive.com/news/fitch-brightens-its-view-on-nonprofit-hospitals/529618/

Dive Brief:

  • Fitch Ratings said its “Rating Watch” for U.S. nonprofit hospitals and health systems is over after the organizations showed improved or stable results this year.
  • During a six-month review of 125 existing issuers, Fitch affirmed 52% of the graded facilities and upgraded 28%.
  • More than 93% of rating changes moved only one to two notches. There were two extreme outliers. Fitch downgraded Lexington Medical Center six notches due to pension liability. Presence Health Network, meanwhile, shot up seven notches.

Dive Insight:

Fitch’s move is a sign of optimism for nonprofits reeling from years of wobbly financial times. The report comes months after Moody’s revised its outlook for the sector from stable to negative. That move followed nonprofit hospitals seeing more credit downgrades in 2017.

Nevertheless, Fitch’s announcement this week shows that hospitals are finding ways to combat tough finances, including lower reimbursements and inpatient admissions. One way acute care hospitals confront those issues is by investing in outpatient services. The strategy helps health systems defend market share.

At the end of 2017, Fitch said investing in outpatient assets is usually favorable for credit profiles, but also leads to “more economic cyclicality and seasonality in patient volumes for hospital companies.”

In its report this week, Fitch said a hospital’s cash and investment portfolio and asset allocation policy play significant roles in its creditworthiness. Balance sheet strength is also an essential piece of ratings — more than operational success or size and scale.

Fitch said size and scale are no longer direct rating factors. However, Fitch may consider if the size and scale enhance or weaken its ability to provide rating stability.

“As borne out by Fitch’s rating actions, it is apparent that providers with strong net leverage are able to withstand potential financial pressures and return to existing rating levels more quickly than credits without strong balance sheet metrics,” the ratings agency said.

Fitch’s review of 125 existing issuers was just under half of its total acute portfolio. Fitch Ratings Senior Director Kevin Holloran said it’s somewhat surprising there were more upgrades than downgrades.

About half of the upgrades were connected to criteria revision, 14% based on credit reasons and 34% because of a combination of credit and criteria reasons. On the other end, about half of downgrades were based on criteria review, 24% on credit reasons and 24% on a combination of credit and criteria factors.

Holloran said upgrades were mostly from “long-time consistent performers that benefited from a ‘new look’ through the lens of our upgraded criteria.” Downgrades were more varied, but balance sheet strength played a pivotal role in predictable credit stability.

Fitch said the future rating trajectory for nonprofit hospitals is “normalcy.” That said, Holloran noted that the sector is dealing with multiple operational challenges this year. Those issues, including external factors, such as regulations and legislation, could drag into 2019.

 

 

 

Moody’s: Nonprofit hospitals face volume, margin declines as insurers acquire physicians

https://www.beckershospitalreview.com/finance/moody-s-nonprofit-hospitals-face-volume-margin-declines-as-insurers-acquire-physicians.html

Image result for downward pressure on profits

As commercial payers swallow up more physician groups and nonacute care services, nonprofit hospitals will see greater pressure on their volumes and margins, according to Moody’s Investors Service.

Moody’s analysts predict insurers will be able to provide preventive, outpatient and post-acute care to their members through acquired providers at a lower cost than hospitals. As a result, insurers will begin carving out hospitals and select services from their contracts, leaving nonprofit hospitals with fewer patients and less revenue.

CVS Health’s $69 billion bid for Aetna and Optum’s takeover of Surgical Care Affiliates are examples of integrations that could threaten nonprofit hospitals’ bottom lines, Moody’s said.

On another front, nonprofit hospitals face increasing pressure from insurers moving quickly to value-based payment programs. Payers will also leverage their growing scale, driven by Medicare and managed Medicaid expansions, in rate negotiations.

“Insurers flexing their negotiating power by offering lower rate increases will likely result in more standoffs and terminations of contracts between insurers and hospitals,” according to Diana Lee, a Moody’s vice president. “To regain leverage, we expect hospitals to continue [merger and acquisition] and consolidation.”

 

Credit rating agency, researchers give vote of confidence to health insurance sector

https://www.fiercehealthcare.com/payer/financial-performance-a-m-best-kaiser-family-foundation-insurers?mkt_tok=eyJpIjoiTjJRNU5qUXlZVEJqWmpjNCIsInQiOiJOR2V2bEp4NkdoeVB3VndhZE43TVBjZXdaTGJcLzk1Z3hBd1wvZ05teDMrcjZ5UzJhb0tzUkpQbWlaSmVvUmJFazVDcERmajBTREhCTXJxR3BBaGtoY1MrZlVtQW5xeXRSbFwvYVhPOE44VE9uYUhNZWNnbGtoR3c3S0xHUlp5SlwvS2kifQ%3D%3D&mrkid=959610

Health insurance, pen and stethoscope

Two new reports offer evidence that policy uncertainty aside, the health insurance industry is doing just fine.

In one report, A.M. Best explains why it decided to change its outlook for the health insurance sector from negative to stable. The credit rating agency said the change “reflects a variety of factors that have led to improvement in earnings and risk-adjusted capitalization.”

While insurers have experienced losses in the individual exchange business, this market segment has improved in 2016 and 2017—in part due to consecutive years of high rate increases, a narrowing of provider networks and a stabilizing exchange population, the report said.

A.M. Best also predicted that Congress won’t make repealing and replacing the Affordable Care Act a high priority in 2018. And even if it does, health insurers will have time to make adjustments, since legislative changes won’t take effect for two or more years.

The rating agency’s findings about the individual market echo those of a new report from the Kaiser Family Foundation, which examined insurers’ financial data from the third quarter of 2017.

It found that insurers saw significant improvement in their medical loss ratios, which averaged 81% through the third quarter. Gross margins per member per month in the individual market segment followed a similar pattern, jumping up to $79 per enrollee in the third quarter of 2017 from a recent third-quarter low of $10 in 2015.

One caveat is that KFF’s findings reflect insurer performance only through September—before the Trump administration stopped reimbursing insurers for cost-sharing subsidies. “The loss of these payments during the fourth quarter of 2017 will diminish insurer profits, but nonetheless, insurers are likely to see better financial results in 2017 than they did in earlier years of the ACA marketplaces,” KFF said.

As promising as these observations about the individual market are, A.M. Best pointed out that this market segment is just a small portion of most health insurers’ earnings and revenues. In fact, health plans largely owe their overall profitability to the combined operating results of the employer group, Medicaid and Medicare Advantage lines of business.

Looking ahead, the agency predicted that Medicare and Medicaid business lines will remain profitable for insurers—though margins will likely compress for both. It said the employer group segment will also remain profitable, but noted that membership will continue to be flat.