So, You Got a Credit Downgrade… Now What?

If you’ve received a credit rating downgrade, you’re not alone. In 18 months, no fewer than 17 major hospitals and health systems have been subject to at least one downgrade.1-3 In fact, one major urban health system was downgraded twice in just five months. As a result, its bonds are now considered non-investible, or junk.4-5 

A hospital’s ability to finance operations and expand depends on its capacity to obtain funding. Even the most profitable, well-run organizations use debt as a financial tool for growth and sustainability. But a credit rating downgrade can put substantial pressure on these efforts.  

Even though you’ve received a credit downgrade, the future of your hospital or health system is still firmly in your control. So long as you take the proper steps now, you may not only avoid additional downgrades, but you may end up earning a credit rating upgrade. 

Why Were You Downgraded? 

There are several reasons why Standard & Poor’s Global Ratings, Moody’s Investors Service or Fitch Ratings may have downgraded your credit rating, including: 

  • A diminished financial profile 
  • A diminished enterprise profile 
  • Staffing challenges 
  • Rising operational costs
  • Fewer admissions
  • Management turnover3 

While any number of these issues may have been the culprit in your downgrade, the most likely and common reason is a diminished financial profile.  

What to Do Next 

Tackling a diminished financial profile may seem like an issue out of your control, and if further downgrades do happen, it may unfortunately turn out to be so. But, by addressing the situation immediately, you may not only prevent another downgrade, but you could put your hospital or health system in position for a potential credit rating upgrade. 

But where do you start?

Get a clear picture of your financial performance.

  • Do you have clear financial metrics defined and are you monitoring performance against best practice benchmarks? If not, establish your revenue cycle KPIs and implement a system to continually monitor performance to benchmarks. 
  • If you have the right KPIs in place, do you know what issues are causing diminished performance?

Find your gaps and build an actionable improvement plan.

  • Improving your financial profile requires knowing what issues need to be addressed and implementing an effective plan to address the root cause problems.
  • Consider engaging a partner to perform a comprehensive revenue cycle assessment to uncover areas of opportunity and create a detailed playbook with prioritized actions and assignments for sustainable improvement.

Increase operational efficiencies.

  • As stated by Standard & Poor’s, high-rated hospitals and health systems have “continued to pivot and use data and technology to manage near-term challenges….”.6 Leveraging data and technology effectively not only helps reduce operating costs but can also help accelerate reimbursement and prevent patients from leaving your care network.
  • What initiatives do you have in place to enhance your use of data and technology across patient engagement, clinical operations and revenue cycle management?

The future of your hospital or health system relies on its credit worthiness. Take action today to strengthen your financial performance and improve your rating. 

Need help navigating your downgrade? Ensemble’s experienced operators can help pinpoint root cause issues, establish reliable action plans for remediation and help drive significant improvement in your financial profile. Contact us today to learn more about how we can help improve your credit rating. 

References: 

  1. Becker’s Hospital CFO Report: 11 recent credit rating downgrades. 
  2. Becker’s Hospital CFO Report: 6 recent hospital credit rating downgrades. 
  3. Becker’s Hospital CFO Report: 7 hospitals hit with credit downgrades. 
  4. Buffalo News: Big financial losses lead to credit downgrade for Catholic Health. The recovery will take some time. 
  5. Yahoo News; Moody’s: Dormitory Authority of the State of New York – Moddy’s assigns B1 to Catholic Health System’s NY) SER. 2022; existing rating downgraded to B1; negative outlook. 
  6. Becker’s Hospital CFO Report: S&P: Nonprofit hospitals likely to face ‘significant’ operating, revenue pressures in 2022.