Moody's Ratings downgraded Parkview Health System's revenue bond rating to A1 from Aa3 on Friday. It also revised the health system's outlook to stable from negative.
The downgrade reflects lower normalized operating performance and rising capital spend at the Indiana hospital operator, Moody's said.
"Parkview's normalized results are continuing to trend at modest levels and below historically higher double digit operating cash flow margins," Rita Strauss, vice president of public project and infrastructure finance at Moody's, told The Bond Buyer by email.
The "main challenges to returning to stronger results include payor mix deterioration, including exposure to government payors, and growing Medicare Advantage, as well as increased self-pay," Strauss said, noting that these pressures apply sector-wide. "Margins are also impacted by increasing expenses."
In Parkview's case, there is also the issue of further pressure from state and federal policies, according to Moody's.
"In recent years, legislators in Indiana have scrutinized pricing for healthcare in the state including possibly requiring some health systems to reduce their average commercial rates," Strauss said. "This would impact Parkview and other providers in the state. We are also watching things like the sunsetting of ACA exchange subsidies, Medicaid work requirements, the step-down of state directed payments."
Any of those policies could strain revenues by impacting the number of uninsured, reimbursement rates and volumes, she said.
Parkview CFO Jessica Lee-Hansen said by email that the health system is "operating in a challenging environment marked by rising inflation in hospital operating expenses and higher state hospital assessment fees."
Parkview's rising capital spend is likely to require additional debt, Moody's noted. The system has approximately $770 million of bond debt outstanding, Moody's said. The bonds, issued through the Indiana Finance Authority as conduit, are rated A-plus by S&P Global Ratings.
Supporting the A1 rating from Moody's are Parkview's broad clinical offerings across northeastern Indiana and northwestern Ohio, as well as a strong physician network and ongoing patient volume growth, Moody's said.
Lee-Hansen said the health system continues to evaluate its capital needs as it looks to expand services to a broader geographic footprint.
"Our goal is to continue to reinvest our operating income to maintain and continually elevate our high-quality care across Indiana and Ohio, while supplementing it with incremental debt to accelerate the development of capital required to meet these needs," she said, in response to a question about how much new debt is contemplated.
The expansion includes additional care in the West Lafayette and Lebanon communities, she said. The health system also recently entered into a letter of intent to pursue a partnership with Goshen Health, ensuring that local healthcare remains accessible to its community.
"We also plan to invest in and build an ED/Urgent Care facility and a medical office building to serve the Marion community," Lee-Hansen said.
Moody's noted the health system's "significant strategic investments, including expansion into new and demographically favorable service areas." Over time, that should "bolster volumes, strengthen market position, and support long-term financial performance," Moody's said.
"In the near term, however, these growth initiatives introduce some uncertainty and will require substantial capital outlays," it added.
