I have written about the Rating Agencies in the past and will give an update about where we are in a bit. What caught my attention recently was an email I received from the American Hospital Association that addresses national issues dealing with hospitals and healthcare. In the email they referenced one of the Rating Agencies with the following headline and analysis:
Moody’s: State Medicaid cuts strain hospital credit ratings
State budget pressures, the slow economic recovery and the recent expiration of federal stimulus funding are placing downward pressure on credit ratings for not-for-profit hospitals that rely heavily on Medicaid, according to a report released today by Moody’s Investors Service. “We expect Medicaid funding pressures will significantly stress hospital credit quality for at least the next several years,” the report states. Based on Moody’s preliminary data for fiscal year 2010, not-for-profit hospitals struggled with the lowest revenue growth rate in more than a decade. “Revenue growth has been stymied on numerous fronts: declines in patient volumes, higher levels of uncompensated care, less favorable contracts with commercial payers, and, most significantly, reductions in federal Medicare reimbursement rates, a challenge which we believe will likely intensify given ongoing federal budget challenges,” the report states. “Medicaid reductions are creating yet another strain on top-line revenue growth that hospital management teams must address.”
So, how do the Rating Agencies View GHS? We went through several days of presenting our story and answering questions to panels of smart analysts in New York. In a way, it was like interacting with a group of consultants. Here are some of the strengths and concerns that came up:
•Strengths
-Strong business position and market share
-Strong debt service coverage
-Adequate financial performance and margins
-Large and growing employed physician network
-Strong and diversifying economy
-Leading market share and wide array of services
-Significant number of employed physicians providing multiple access points
-Improved FY2010 and FY2011 YTD operating performance and margins
-Improved debt to cash flow and debt service coverage
-Solid operating platform that includes large group of employed physicians and leading market share
-Good service area with below average unemployment
-Steady improvement in liquidity
-View the medical school as strategically positive
•Concerns
-Costs associated with Medical School
-Payor mix that includes16% Medicaid
-Thin operating margins
-High level of Medicaid, bad debt, and DSH payments which leaves GHS vulnerable to changes in governmental programs
The good news is there are a lot more strengths than concerns and the ratings bear out that fact. And, the To Do list for this coming year is pretty focussed and we are on it. How did we do? Really well:
•Standard & Poor’s (S&P) – Rating and outlook affirmed at AA-
•Moody’s Investors Service – Rating and outlook affirmed at A1/Stable
•Fitch Ratings – Rating downgraded from AA to AA-
What is the context for these ratings? In other words, how do we compare to other Healthcare Systems’ ratings S&P, Moody’s, Fitch. I have laid out their ratings and put my comments in the parentheses next to the categories:
Regional Competitors: (These are the systems I think about the most from a strategic, competitive standpoint. We are slightly below Carolinas and above Novant)
Carolinas Healthcare System – AA-, Aa3, NR
Novant Health – A+, A1, AA-
Local Community Hospitals: (All have solid ratings and we are above all of them)
AnMed Health* – A+, NR, AA-
Spartanburg Regional – A, A1, A+
Bon Secours – A-, A3, A-
Academics Health Systems: (This is the group that we will increasingly be compared to, but it is hard to tell, since some do not report or their rating is related to their respective University)
Duke University Health System – AA, Aa2, AA
Emory University Hospital ** – AA, Aa2, No Rating
University of North Carolina Hospitals – AA-, Aa3, No Rating
MUSC – No Ratings
To summarize, we are strong, stable, with the best ratings in the state, positioned for the future, and we have our work cut out for us – especially when it comes to state and federal funding.
