Fitch Ratings is maintaining it's A+ credit rating for Catholic Health Initiatives, the rapidly expanding national health system that earlier this week reported a sharp drop in its operating performance. Rival rating agency Standard & Poor's recently downgraded CHI because of weak financial results.
Fitch did lower its outlook for the Englewood, Colo.-based system to negative but said that CHI's growth strategy to prepare for more insurance contracts to manage costs, promote health and more effectively manage disease was “appropriate.”
“While the highly pressured financial position elevates the inherent execution risk of repositioning the system, Fitch expects that CHI should begin recognizing benefits from investments made to date and make meaningful progress towards thriving under the changing revenue and reimbursement models prompted by healthcare reform,” Fitch said in its ratings report.
The action by Fitch follows a one-notch downgrade from Standard & Poor’s after Catholic Health Initiatives reported that the system lost $134.7 million on revenue of $3.2 billion for its first quarter of the fiscal year, which ended Sept. 30. The system has reported operating losses the last two fiscal years as a string of deals for health systems, hospitals and health plans has expanded its reach and diversified its operations.
"We are pleased that Fitch has affirmed CHI's strong credit rating,” said Dean Swindle, one of Catholic Health Initiatives two presidents and its chief financial officer. “We feel that this is a testament to the effectiveness of the organization's long-term plans and strategic objectives."
Weak operating performance in Kentucky, where state officials challenged CHI's expansion plans, dragged down the system's performance. The market is one of the system's largest, with more than $2 billion in annual revenue. The state's operations finished 2014 with a negative 10% operating margin, Fitch reported.
Swindle said uncertainty in Kentucky delayed development of a system created by the 2012 consolidation of the state's St. Joseph Health System with Jewish Hospital & St. Mary's Healthcare. Tennessee's governor rejected plans to include University Medical Center in Louisville in the deal over concerns about out-of-state control and limited services under Catholic Ethical and Religious Directives, but he later allowed the academic medical center to join the newly formed system under a joint-operating agreement.
Swindle said CHI also filled a top vacancy by hiring Randall Combs as chief financial officer of its Kentucky system. The Kentucky operations also struggled with a drop in volume and unexpectedly high costs in adopting an electronic health-record, both ratings agencies said. Physician services growth and a health plan added to operating costs. “Everything was difficult in Kentucky last year,” Swindle said.
Fitch analysts said there are signs of a turnaround in Kentucky and said the system's strategy to bolster operations there includes working more closely with the University of Louisville, expanding its medical group and clinically integrated network and stabilizing operations.
The system has launched an effort to reduce its operating expenses by more than $200 million for fiscal year 2015, Fitch said. Catholic Health Initiatives said earlier this month it plans to cut 1,500 jobs through the end of January.
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