Wednesday, June 13, 2012

There's something about Fairview...

From the Pioneer Press:

Moody's downgrades Fairview Health's bond rating

A bond rating agency has downgraded the debt of Fairview Health Services due to weak financial performance as well as turmoil in the wake of a critical report from Attorney General Lori Swanson on the Minneapolis-based health system's billing and collection practices. 

"The downgrade and negative outlook reflect the significant downturn in financial performance in (fiscal) 2011," Moody's wrote in a report issued this week.  

Other factors driving the downgrade, Moody's wrote, include: "unexpected management turnover, and the potential reputational risks for Fairview following the Minnesota Attorney General's investigation of a contract company that worked onsite at Fairview facilities for a two year period." 

In fiscal 2011, Fairview posted operating income of $16.7 million on about $3 billion in revenue, which works out to a margin of 0.6 percent. That was the third-lowest operating margin among a group of 12 health systems based in the Twin Cities metro, according to a Pioneer Press analysis.

In 2010, Fairview did much better financially, with an operating profit of about $80.8 million on $2.8 billion in revenue.

The downgrade would make future borrowing more costly for Fairview, but the health system wasn't planning to go to the bond market this year to raise money, said Davenport, the spokesman.

"It's disappointing, but it's not unexpected," Davenport said, adding that Fairview thinks its new A3 rating from Moody's remains a good one. "Given the financial challenge we faced in 2011 and current events happening within our organization, it's understandable." 


Twin Cities hospital profit down in 2011

Hospital and clinic systems based in the Twin Cities saw a decline in operating income and profit margins during 2011.
For a group of a dozen health systems based in five large counties in the metro area, operating income fell about 21 percent from about $363 million during fiscal 2010 to about $288 million last year.
Collective revenue for the health systems grew by about 5 percent from $10.7 billion in fiscal 2010 to $11.2 billion last year.
Nonprofit health systems, in general, have a somewhat cloudy financial outlook due to flat admission trends at hospitals as well as pressure from the government and private insurers to keep a lid on reimbursements, according to an April report from Moody's Investors Service.
"Inpatient admissions were again flat in 2011, repeating trends seen in 2009 and 2010, and will continue to be a factor in our expectations for lower-than-average revenue growth," the report stated.
The Pioneer Press tabulated fiscal 2011 results for 12 health systems based in Anoka, Dakota, Hennepin, Ramsey and Washington counties.
The tally includes results from big-name systems such as Allina, HealthEast and Fairview, along with smaller groups such as Northfield Hospital, just north of the Dakota-Rice county border.
Most of the systems report revenue not just from hospital operations but also outpatient clinics.
Minneapolis-based Allina Health System remained the largest system in the Twin Cities with $171.8 million in operating income on revenue of $3.2 billion. Fairview Health Services, also based in Minneapolis, posted operating income of $16.7 million on $3 billion in revenue. As a group, the 12 health systems earned 2.6 cents in operating income per dollar of revenue in fiscal 2011. During 2010 and 2009, the hospital systems earned about 3.5 cents per dollar of revenue.
The newspaper's analysis includes financial results from Regions Hospital in St. Paul, but not from the related clinic system operated by the HealthPartners Medical Group. Other systems included in the tally are: Children's, Gillette Children's, Hennepin County Medical Center, Lakeview, North Memorial, Park Nicollet and Regina Medical Center.
The Pioneer Press tally does not include large players beyond the metro area such as the Mayo Clinic, which reported $610 million in operating income on revenue of $8.48 billion during fiscal 2011. Based in Rochester, Minn., Mayo operates hospitals and clinics in Arizona, Florida, Iowa, Minnesota and Wisconsin.

Senate Committee on Finance and Planning
Tuesday, May 29, 2012

 Professor Luepker turned now to Vice President and Associate Vice President Tonneson to provide the Committee a report on financing the Ambulatory Care Center (ACC) and the FY13 budget.  Mr. Pfutzenreuter began with the ACC.  [The new ACC will be located on Fulton Street, just off the Huron Boulevard exit from I94, on the site of what is currently a parking lot.]

The ACC is proposed to have a partnership financing structure, Mr. Pfutzenreuter told the Committee.  There will be two tenants, two separate business entities, in the ACC.  One will be Fairview-owned provider-based clinics that are totally owned by Fairview, and the other will be clinics that are jointly owned by Fairview and University of Minnesota Physicians (UMP).  There will be two separate leases that will be tied to the integrated structure that Professor Shulz alluded to earlier.   

Of the $142.5 in building costs, Masonic Charities is making a $10-million contribution.  The remaining $132.5 million will be financed by University of Minnesota Special Purpose Bonds.  The ACC will make lease payments to the University that will be sufficient to cover the debt payment on the Special Purpose Bonds.  Fairview will provide an explicit debt backstop for about 61% of the total $132.5 million indebtedness and UMP will provide an explicit debt backstop for the remaining 39%.  So the bonds will be secured by leases and corporate guarantees.  The ACC itself will be responsible for facility upkeep and maintenance and long-term capital upgrade costs.

The University is taking this action because it is important to UMP—which is, for rating and other purposes, really a part of the University
—and because it is where students will be trained, Mr. Pfutzenreuter said. They have tried to protect the University from the downside through the leases and corporate guarantees. There is also a letter of agreement that if the cost changes, all three entities (the University, Fairview, and UMP) must agree. The cost has to be agreed on within a year or so and it is likely the University would issue debt starting in the fall of 2013. (The predicted debt service is about $8 million per year.) Moreover, the project will not move forward until there is a governance and management agreement between Fairview and the University.

In response to a query from Professor Luepker, Mr. Pfutzenreuter affirmed that the University will own the building and that Fairview and UMP will make lease payments. Professor Luepker also noted, from information that Mr. Pfutzenreuter had provided, that the University has a better credit rating than Fairview; is that why the University is providing the financing? Mr. Pfutzenreuter said the cost of capital will be less than if Fairview and UMP had handled the financing, so the University acting as banker helps keep the costs down.

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