In recent years, inpatient facilities have faced financial difficulties. Primary care is currently changing with healthcare cost expected to continue rising for inpatient facilities. As this is happening, new companies are entering the healthcare marketplace and threatening to disrupt the entire economic model. However, there a few health systems that are fighting this economic trend.
A Brief Background:
There has been a number of larger hospitals that have experienced net losses to their operating margins over the last few years. Some of the larger names include MD Anderson cancer centers, New England’s Partners HealthCare and the Cleveland Clinic.
For example, The Cleveland Clinic suffered a 71% decline in its operating income in 2016. By 2018, their operating income had dropped 19 percent. The Ohio-based health system attributed the reduction in income to the expanding cost of providing patient care as well as the decline in reimbursement rates.
According to analysis from Harvard Business Review, there are two main reasons for this reduction in operating incomes. They argue that there is a mismatch between organizations’ strategies and actual market demand, and a lack of operational discipline. There is a view that health systems need to reorganize their payment models and physician employees in order to become more financially stable.
Since 2008, many hospitals and health systems have pursued a strategy of scaling up in size through mergers and acquisitions. This strategy also included expanding medical staff and assuming more financial risk from insurance providers. However, healthcare industry observers question whether this strategy is financially sustainable.
Bucking the Trend:
With the current challenges that are facing health systems, there are still some bright spots. There are actually 7 hospitals and health systems that are experiencing financial success according to recent reports from Moody’s Investors Service, Fitch Ratings and S&P Global Ratings. Their data shows that these health systems possess strong operational metrics and solid financial positions.
For definitions about what the S & P Global Ratings actually mean, click here. As a reminder. the best financial ranking for a health system is an AAA rating. When an obligor possesses a triple “AAA” rating, this signifies an “extremely strong capacity to meet its financial commitments.” AAA rankings are the highest issuer credit rating assigned by S&P Global Ratings.
However, it should be noted that operational income is only one-piece data. As of September 2018, even though Cleveland Clinic is facing operational challenges, they still had an “Aa2” rating and stable outlook from Moody’s Investor Service. This is due to Cleveland Clinic’s strong brand recognition, exceptional fundraising ability and healthy cash flow.
[1] TriHealth:
Cincinnati-based TriHealth is a unified health system that currently has an “AA-” rating as well as a stable outlook with Fitch Ratings. The health system now includes four hospitals, Bethesda North, Good Samaritan, Bethesda Butler,
and TriHealth Evendale Hospital. TriHealth offers a variety of health services and programs, with the non-hospital services including physician practice management, fitness centers, home health, hospice care and occupational health centers. Fitch Ratings predicts that the Ohio-based health system will maintain its current growth and good operating ratios.
[2] WellSpan Health:
With its headquarters located in York, Pennsylvania, this large integrated health system has over 15,000 employees and delivers healthcare services in South-Central Pennsylvania and northern Maryland. WellSpan Health has earned an “AA-” rating and stable outlook from Fitch Ratings. This financial rating is largely due to the health system’s leading market position in south-central Pennsylvania and a strong financial profile. The WellSpan York Hospital offers many graduate-level educational programs as well as allied health certification programs.
[3] Christiana Care:
This network of private, non-profit hospitals provides health services in the state of Delaware as well as the surrounding border states. Christiana Care Health System, based in Wilmington, Delaware; has an “Aa2” rating and stable outlook with Moody’s. This rating is largely due to the health system’s solid margins and robust balance sheet. The not-for-profit teaching health system ranks the top in volume of leading hospitals and has five primary locations with more than 260 residents and fellows.
[4] Duke University Health System:
Based in Durham, North Carolina, the Duke University Health System includes the Duke University School of Medicine, School of Nursing, the Duke Clinic as well as other member hospitals. The health system currently has an “Aa2” rating, solid margins, healthy cash levels and stable outlook according to Moody’s Investor Service. The health system is a leading provider of tertiary and quaternary services with a focus on research, education and clinical care.
[5] Northwestern Memorial HealthCare:
Northwestern Memorial Hospital is an academic medical center located in Chicago, Illinois, that also provides healthcare services across Northern Illinois and Southwest Indiana. The academic medical center has an “Aa2” rating and a stable outlook with Moody’s. The expectation is that the Northwestern Memorial’s operating model and comprehensive IT systems will enable it to execute growth strategies while maintaining strong margins. Primarily a teaching hospital, the health system has over 890 inpatient beds with over 1,600 physicians on staff.
[6] Novant Health:
Headquartered in Winston-Salem, North Carolina, Novant Health delivers health services to more than 4 million patients annually. Moody’s assigned the health system an “Aa3” rating and a stable outlook. The credit rating agency expects Novant Health to continue to generate positive cash flow margins. The integrated health network has 15 hospitals with medical locations in North and South Carolina as well as Virginia. The health system consists of more than 1,500 physicians, 26,000 employees with more than 500 separate locations.
[7] SSM Health:
This health system is based in St. Louis, Missouri and has an “AA-” rating and stable outlook with Fitch Ratings. SSM Health possesses a strong financial profile and is expected to continue growing while maintaining improved operational performance. With over 40,000 employees, the Catholic, not-for-profit health system delivers healthcare services in Missouri, Illinois, Oklahoma and Wisconsin. The health system is sponsored by the Franciscan Sisters of Mary and is one of the largest Catholic hospital systems in the United States.
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