Hospital profits in Massachusetts shriveling due to financial pressure

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Hit especially hard were Massachusetts’ community hospitals, with median operating margins plunging to 0.9 percent.

Acute care hospitals in Massachusetts are turning a profit for the most part, but in many cases those profits are less than robust. The state’s Center for Health Care Information and Analysis found that many are in a financially precarious position.

According to the report, about 65 percent of the commonwealth’s hospitals have operating margins below three percent. Overall, hospitals’ operating margins hovered around 1.6 percent. That’s down from 2.8 percent during the previous fiscal year.

While 49 of 62 hospitals were profitable in the fiscal year ending Sept. 30, many low margins low enough not to be considered financially healthy.

Hit especially hard were Massachusetts’ community hospitals, with median operating margins plunging to 0.9 percent — down two full percentage points from the previous year.

The northeastern part of the state saw the lowest margins geographically, at 1.6 percent, with some facilities operating on negative margins and hemorrhaging cash. North Shore Medical Center in Salem was among the hardest hit, seeing $57.7 million evaporate in fiscal year 2017.

Not all Massachusetts hospitals are feeling those kinds of pressures. Northeast Hospital enjoyed a 9 percent operating margin during the past fiscal year, translating into a $33.1 million surplus.

That the state’s rural hospitals are struggling isn’t surprising, given the national trend. A recent report found that nearly half are operating at negative margins, fueled largely by a high rate of uninsured patients. Eighty rural hospitals closed from 2010 to 2016, and more have shut their doors since.

Aside from the high uninsured rate, a payer mix heavy on Medicare and Medicaid with lower claims reimbursement rates is a contributing factor. More patients are seeking care outside rural areas, which isn’t helping, and many areas see a dearth of employer-sponsored health coverage due to lower employment rates. Many markets are also besieged by a shortage of primary care providers, and tighter payer-negotiated reimbursement rates.




5 key takeaways from hospitals’ Q2 results

Earnings results were mixed for hospital operators in the second quarter, with debt-laden health systems slagging and high-performing counterparts pulling ahead.



Allina’s operating income sinks 45% in Q2

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Allina Health’s revenues increased in the second quarter of 2018, but the Minneapolis-based system’s operating income plummeted due to growth in expenses.

Allina reported revenues of $1.07 billion in the second quarter of this year, up from $1.01 billion in the same period of 2017, according to recently released bondholder documents. The boost was attributable to higher net patient service revenue, which climbed 6.4 percent year over year.

The system’s operating expenses totaled $1.06 billion in the second quarter of 2018, up from $990.4 million in the same period a year earlier.

Allina ended the second quarter of this year with operating income of $13.1 million. That’s down 45 percent from the first quarter of 2017, when the system reported operating income of $23.9 million.

Allina reported an investment return of $33.8 million in the second quarter of 2017, but that number dropped to $6.3 million in the second quarter of this year.

After factoring in the drop in investment income, Allina’s net income tumbled 56 percent year over year to $19.1 million in the second quarter of 2018.



Investors Cash Out of HCA Healthcare as Stock Soars to Record

Long-term shareholders were cashing out of HCA Healthcare Inc. in the second quarter, as the stock rallied to record highs in late June — levels since eclipsed by bigger gains this quarter.

Hedge funds Glenview Capital Management, Highfields Capital Management, Wellington Management Group, Magellan Asset Management and Harris Associates cut their stakes in the hospital chain, which saw its shares rise 17 percent in the first half and an additional 27 percent so far this quarter. The investment firms sold a combined 17.3 million shares, according to their latest 13F filings.

After being under pressure for nearly two years, hospitals have staged a comeback in 2018, outperforming most of their health-care peers with a 21 percent gain. The rally was led by Tenet Healthcare Corp., which has more than doubled, and HCA, which saw earnings and patient visits improve. HCA was also among hospitals uniquely benefiting from the U.S. corporate tax overhaul.



Operating margins for systems and hospitals continued to decline due to increasing expense pressures as well as slowing net patient revenue growth across all rating levels.


Strong balance sheets and capable leadership continue to lead the way for stable success.

M&A activity has bolstered the financial standing and credit ratings of not-for-profit health systems.

Not-for-profit systems are outnumbering stand-alone hospitals through increased M&A activity.

Stand-alone hospitals experienced their second consecutive year of negative outlooks.

Not-for-profit health systems and stand-alone hospitals have maintained generally favorable bond ratings due in large part to strong balance sheets, despite the continual decline in operating margins and cash flows.

S&P Global Ratings released research this week on the financial status of not-for-profit health systems and stand-alone hospitals in 2017.

The sector remained consistent in several year-to-year, such as improving days’ cash-on-hand levels and marginal reduction in debt levels, though the study found that the underlying pressures on not-for-profits are beginning to take their toll. The operating margin for the sector declined from 2.4% in 2016 to 1.8% in 2017.

S&P also noted that not-for-profit health systems continue to outnumber stand-alone hospitals and received stronger overall ratings from the agency.


  • 152 total affirmations
  • 16 total upgrades, though six upgrades were driven by systems merging together.
  • 15 total downgrades

S&P said a major factor that allowed health systems and hospitals to weather financial challenges last year was the combination of strong balance sheets and leadership. 


  • Robust M&A activity has improved the financial profile for systems.
  • Despite the same challenges with maintaining an overall patient base, systems have experienced a growth in outpatient services.
  • Sizable investments in information technology have resulted in strong credit ratings.

S&P analysts said that stand-alone hospitals featured stronger medians than systems but found they are weakening. This is due to softer patient volumes, a weakening payor mix combined with increased pressure from commercial payors, and labor expenses. 


  • While the amount of stand-alone hospitals are shrinking, they produced stable balance sheets that were noted as a “principal strength of financial profile.
  • Debt levels fell due to declining unrestricted net assets.
  • However, negative operating margins appeared in BBB rating levels.


Fitch brightens its view on nonprofit hospitals

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.




Kaiser’s net income dips 35% to $653M

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Oakland, Calif.-based Kaiser Permanente reported higher revenue for its nonprofit hospital and health plan units in the second quarter of 2018, but the system ended the period with lower net income.

Kaiser’s operating revenue climbed to $19.6 billion in the second quarter of this year. That’s up 8 percent from revenue of $18.1 billion in the same period of 2017.

The boost was attributable, in part, to the system’s health plan unit. In the first half of 2018, Kaiser added 453,000 health plan members. As of June 30, Kaiser had 12.2 million members.

Kaiser’s expenditures in the second quarter of 2018 included capital spending of $735 million, which includes investments in upgrading and opening new facilities, as well as in technology. In the second quarter of this year, Kaiser opened five new medical offices in California, bringing the system’s total number of medical offices nationwide to 689.

Kaiser reported operating income of $345 million in the second quarter of this year, down 55 percent from $772 million in the same period of 2017.

After factoring in nonoperating income, Kaiser ended the second quarter of 2018 with net income of $653 million, down 35 percent from net income of $1 billion in the same period of the year prior.