Redeemer Health has continued operating losses, gets credit downgrade
The S&P ratings agency cited rapidly "declining operating margins" and a long run of operating losses in its report on the downgrade at Redeemer Health.
Standard & Poor’s Global Ratings cut Redeemer Health’s credit rating by one notch, to “BB,” citing accelerating operating loses and declines in cash reserves at the nonprofit health system in Montgomery County.
The lower credit rating means that the ratings agency considers Redeemer a risky investment for municipal bond investors. The lower rating would also make it more expensive for Redeemer to sell more bonds, but it has no plans to do so.
Redeemer owns a hospital in Meadowbrook with 165 staffed beds, plus nursing homes, and other health-care operations. It faces stiff competition from the nearby and much larger Jefferson Abington Hospital.
Redeemer management expects to report a $45 million operating loss for the year that ended June 30, according to S&P.
“This loss is three times larger than what had been originally budgeted and would have been worse absent receipt of approximately $14 million of relief funding,” S&P said in a report published Aug. 11.
Redeemer now expects a $15.7 million loss for the fiscal year that started July 1, according to S&P. That would give Redeemer eight straight years of operating losses.
Redeemer’s annual losses began before the pandemic. The last two years have been particularly hard on the bottom lines of health systems, which have seen widespread losses because of higher labor and other costs, as well as a broad shift to outpatient care.
Contributing to Redeemer’s recent losses is the cost of contract labor, which has averaged $1.2 million per month over the past 15 months, S&P said.
Redeemer said in a statement that it was disappointed by the downgrade. “S&P concluded that Redeemer Health’s operating losses are largely due to sharply increased labor expenses, but the service area’s need for the system remains robust,” Redeemer said.
Redeemer, founded by an order of Roman Catholic nuns who emigrated to the United States from Germany in the 1920s, has long benefited from its relatively low debt load and large cash reserves. But those reserves shrank to $155 million at the end of March, from $222 million on June 30, 2021.
Industry experts with knowledge of the situation say the hospital is for sale. In May 2022, Redeemer said that the effort was focused on its hospital, not its other facilities.
In announcing the credit rating downgrade, S&P noted Redeemer management is still looking for a “strategic partner to provide capital and operational support.”
Redeemer told S&P that it expects to have a deal by the end of this year.