In a dim assessment of the health care system’s financial affairs, a major credit-rating agency has downgraded Altru Health System’s revenue bond rating.
The New York City-based Moody’s, a financial services corporation, last month downgraded Altru Health System’s revenue bond rating to “Baa2” — a figure on a scale that stretches from a sterling “Aaa” to a poorly rated “Ca.” That means Altru’s bonds are now rated a slightly less preferable “good” tending toward “fair,” according to documents provided by Moody’s. The bonds had been affirmed at “Baa1,” the next highest rating, as recently as 2017.
“The downgrade … reflects a number of ongoing challenges, including declining operating performance, declining liquidity, and weakening debt measures that we anticipate will continue over the near term,” a report from Moody’s states.
According to Moody’s, the rating downgrade affects $142 million of “rated debt” out of a total $211 million in debt. As a result of the downgrade, Altru may have to pay more interest on bonds issued in the future.
Sally Grosgebauer, a spokesperson for Altru, said in an email that Moody’s decision “is representative of what is happening across the healthcare industry,” with hospitals juggling higher costs, lower reimbursements and “a tighter labor market,” among other issues.
“We are committed to improving our financial performance through formal operational improvement efforts, while aligning our resources with the needs of the community and region,” Grosgebauer said. “Altru remains steadfast in our focus on innovation and continued growth as part of our bold new era.”
The rating downgrade came weeks after Altru broke ground on a new $305 million, 528,000-square-foot hospital set to begin welcoming patients in late 2022. That came after a structural failure at its main clinic in 2017.
The Moody’s report has several bright points. Altru has “good market share” in Grand Forks and the surrounding region, a big labor force with diverse medical specialties and important relationships with other providers — like its membership in the Mayo Clinic Care Network.
But the report also points out that Altru’s finances are trending downward. Its “days cash on hand” — that is, how long it can run solely on financial reserves — has gone from 141 at the end of the 2017 fiscal year to 127 one year later to 111 as of June 30. “High capital spending,” the report states, will probably make it hard to sock more money away in the near-term.
Leadership turnover also has been a problem, with the company’s CFO position open from June 2018 to February 2019, according to the report. Also, the CEO retired in late 2018, and was replaced by the COO.
“Other positions in the finance department are empty, and are currently being recruited,” the report states. “[…] The absence of a full complement of managers likely contributed to the poor operations in 2018 and continuing into 2019.”
Keith Lund, president and CEO of the local Economic Development Corporation, pointed out that healthcare is broadly facing the same kind of headwinds throughout the country. He pointed to a Moody’s analysis from late last year that says nonprofit healthcare “revenue growth will be constrained” in the near future, as hospitals work to increase patients and struggle with “higher bad debt as co-pays and deductibles rise.”
David Flynn, a professor of economics at UND, wondered to what extent Altru’s woes fit into a “broader narrative of difficulty getting and retaining workforce in the Grand Forks region.”
“It depends if you view Altru as a bellwether for the local area,” he said. “Because if you do … and things like operating measures, balance sheets have been weakening — why? What’s going on?”
He added, though, that Altru’s downgrade — by itself — isn’t cause for alarm.
“This is not a panic moment — this is (also) not a ‘completely dismiss’ moment,” he said. “This is, OK, a business is facing pressures. But we’re seeing that a lot in Grand Forks right now, and so that’s not something we’re going to be shocked by, and nor should we be.”