Jefferson keeps A credit rating from Standard & Poor’s, but remains under financial pressure

Jefferson Health’s owner retained its A credit rating from Standard & Poor’s, but the ratings agency now has a negative outlook on Thomas Jefferson University, given the not-for-profit’s years of operating losses.

Despite notably weaker finances than peers with the same credit rating, S&P said it did not downgrade Jefferson because of its sheer size, its ownership of an insurance company, and its efforts under new management to turn a system of 18 hospitals into “a closely managed operating company.”

Jefferson is aiming to trim its operating loss for the fiscal year that ends this month to $80 million, from a nine-month loss of $117 million. That goal is “somewhat aggressive given continued labor volatility and other industry challenges,” the lead S&P analyst Cynthia S. Keller wrote in her June 9 report.

At the same time, she said: “We consider some improvement through year end and into next fiscal year as necessary” for Jefferson to keep its A rating.

In March, Moody’s Investors Service had downgraded Jefferson by one notch, to A3, which is the equivalent of A- for S&P. Moody’s cited Jefferson’s increased debt and rising industrywide expenses that will make it hard for the health system based in Center City to rebuild cash reserves.

Jefferson’s new chief executive Joseph Cacchione has not spoken to The Inquirer about his plans since January, when he announced the creation of three Jefferson regions and trimmed the executive ranks at some hospitals.

“We need to better integrate Jefferson. Today, many of our hospitals at Jefferson really compete with one another,” he said then.

S&P mentioned that Cacchione plans to cut $300 million in costs. One potential step: Taking excess hospital capacity out of the system. For example, Jefferson is closing Einstein Medical Center Elkins Park on June 30 and turning it over to MossRehab, which Jefferson also owns. Much of that plan was in place before Jefferson completed the acquisition of Einstein in Oct. 2021.

Jefferson hasn’t announced plans to close or sell any of the other hospitals it acquired during a broad expansion starting in 2015.

Jefferson’s most recent acquisition, Medicaid and Medicare insurer Health Partners Plans, could yield savings, according to S&P.

“Management has identified opportunities for synergies and cost savings, primarily in corporate services totaling $48 million in fiscal 2023,” S&P wrote.

Health Partners’ general and administrative expenses were $149 million in 2021, according the company’s audited financials.