Fitch Ratings lowered its already low rating for West Penn Allegheny Health System to CCC from B+, a multi-notch drop, as the chance of debt restricting grows and an acquisition by Highmark looks less certain.
The news came as the financially strapped health system and Highmark, a Pittsburgh insurer, went before a Pennsylvania judge for a hearing on West Penn Allegheny's recent bid to back out of its acquisition by Highmark in order to search for another buyer. The system announced the deal was off in late September and Highmark quickly sued to stop West Penn Allegheny from talking to new suitors.
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One major credit rating agency upgraded more not-for-profit hospitals and systems than it downgraded between July and September, and deals—mergers, acquisitions and leases—were behind better credit in several cases.
Moody's upgraded 12 not-for-profit healthcare borrowers with $3.2 billion in outstanding debt last quarter compared with the seven downgraded borrowers with $957.3 million of debt, Moody's said in a new report.
Indeed, deals have been so numerous and have so influenced credit that Moody's Investors Service now says it was wrong earlier this year when it said that 2012 would likely close with more downgrades than upgrades. The year may end with an equal number of each, the report said. “We're not prognosticators here,” said Moody's associate analyst Carrie Sheffield. “We do have a negative outlook for the sector” and analysts expected to see more downgrades than upgrades, she said.
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Later this week, Catholic Health Initiatives is expected to enter the taxable market to borrow $1.5 billion, joining a string of not-for-profit systems that have bypassed tax-exempt debt thanks to the flexibility and recent favorable rates found in taxable markets.
“Tax-exempt debt is a really terrific, low-cost financing vehicle, but it's a lot more difficult to accomplish because of the way the rules work,” said Linda MacDonald, vice president of treasury services for the Englewood, Colo.-based system. Taxable debt allows borrowers to move more quickly, she said.
Tax-exempt debt also has restrictions on how it can be used that don't exist for taxable debt. To be financed with tax-exempt bonds, acquisitions and other assets that require capital investments cannot be for-profit. Borrowers must limit the for-profit use of projects financed by tax-exempt bonds to 5% until the bond is paid off.
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New court records in the disputed breakup of West Penn Allegheny Health System and Highmark suggest that the system's continued financial distress left the insurer with a nagging sense of buyer's remorse.
Highmark, which last year agreed to acquire West Penn Allegheny for $400 million in grants and loans and another $75 million commitment to medical education, presented the health system in August with analysis “suggesting that Highmark is overpaying for West Penn Allegheny,” according to the health system's latest court filings.
The pair ended up in court this month after Highmark sued to stop West Penn Allegheny from looking for a new buyer. West Penn Allegheny said in late September it would seek a new buyer after Highmark demanded new terms and insisted the system restructure its debt in bankruptcy.
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Chilton Hospital officials saw greater access to capital for ambulatory expansion, information technology and other investments to prepare for accountable care as one compelling reason to join a larger health system.
Another reason: The possible arrival in New Jersey of the joint venture between Ascension Health Alliance and the private equity firm Oak Hill Capital Partners to build a Catholic for-profit health system.
Deborah Zastocki, president and CEO of Chilton Hospital, said the independent hospital, which announced board approval for a merger with Atlantic Health System this week, reconsidered its solo status in response to changes in healthcare delivery, but also potential changes to New Jersey's healthcare marketplace.
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Policymakers who hope to see hospitals respond to financial incentives for better quality care will be disappointed by a newly published report on costly, potentially deadly, hospital-acquired infections.
My colleague Maureen McKinney reported on the results, published in the New England Journal of Medicine: The 2008 Medicare policy to stop payment for catheter-associated bloodstream and urinary tract infections contracted by patients during a hospital stay did not produce a hoped-for drop in infection rates.
The rate of bloodstream infections, on the decline before the policy change, continued to drop at about the same pace as before the pay cut, the researcher said.
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The week began with the start of Medicare's penalties for hospitals with higher-than-average rates of heart attack, heart failure and pneumonia patients who leave the hospital only to return within 30 days.
But Medicare is not the only payer to penalize hospitals for repeat visitors. Medicaid, in some states, also cuts hospital payments based on readmissions. As we reported in late September, changes to Medicaid policy have increased financial incentives for hospitals to reduce hospital admissions.
Now Massachusetts Medicaid is scheduled to increase its readmission penalties starting Nov. 1. The state began in 2011 to cut payments by 2.2% for hospitals with excess readmissions.
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The three major players in Pittsburgh's healthcare market—West Penn Allegheny Health System, Highmark and the University of Pittsburgh Medical Center—have a combative and litigious history (for a review, see here). Now, the possible breakup of an alliance between West Penn Allegheny and Highmark, an insurer, has landed two of those players back in court.
Highmark said in court filings this week that West Penn Allegheny had no grounds to exit the deal the partners signed almost a year ago. (“It is truly sad that Highmark has taken this step,” West Penn Allegheny responded.)
Under the deal in dispute, Highmark would acquire the health system and West Penn Allegheny would receive desperately needed cash.
Highmark began immediately to pour cash into the struggling system, which has continued to see its operations deteriorate since the deal was announced. West Penn Allegheny lost $87.8 million on operations between June 2011 and March 31, the most recent financial information available. That's compared with a $35.1 million loss for the same nine months the prior year.
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More than three years out from the end of the Great Recession, the economy's weak and fitful recovery has continued to deliver disappointing job growth. Hospitals have reported fewer patients and more uninsured since the recession, which stripped some households of health insurance as the economy shed jobs.
But here's some news that may be welcomed by hospitals. Newly released Census Bureau figures show that an erosion in employer-sponsored insurance, which accelerated during the downturn, halted in 2011.
Unsurprisingly, the percentage of people with health insurance through an employer dropped sharply in 2009 (56.1% from 58.9% the prior year) and continued to slide in 2010 to 55.3%. But last year's 55.1% was not a significant difference from the year before, the Census Bureau said. You can read more on the Census Bureau figures in this week's Modern Healthcare.
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Hospitals increasingly ask patients to pay a medical bill when they arrive or before they leave. Here's a look at how one Minnesota hospital went too far to collect bills and violated Medicare rules and a law that safeguards access to emergency medical care, regardless of ability to pay.
The University of Minnesota Medical Center, one of seven hospitals owned by Fairview Health Services, is facing a full audit of its compliance with Medicare rules and a follow-up inspection of how well it adheres to the Emergency Medical Treatment and Labor Act, which says hospitals must hold off any talk of payment until a patient has been examined and stabilized.
Collection efforts at Fairview hospitals came under public scrutiny this year after an inquiry by Minnesota's attorney general into Accretive Health, the healthcare billing and collection company Fairview hired. Accretive, based in Chicago, reached a settlement with the attorney general in July that barred the company from Minnesota for at least two years. Accretive denied any wrongdoing.
Nonetheless, an investigation into the University of Minnesota Medical Center found that hospital bill collectors harassed patients and violated EMTALA.
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The first two years of a Sacramento accountable care experiment cut spending by $50 million, including $13 million that was divided by the participating doctors, hospitals and insurer.
But in year three, those savings have grown more elusive. That's according to Kristen Miranda, vice president of provider network management at Blue Shield of California, which launched the project with Dignity Health, formerly Catholic Healthcare West, and Hill Physicians Medical Group. “It does get harder,” said Miranda.
The partners were scheduled to meet last week to review new strategies for further savings, such as development of patient-centered medical homes, she said.
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