Twin Cities Nurses’ Strike Risks Ratings

CHICAGO — As nonprofit hospitals in the Twin Cities brace for a threatened nurses’ strike, Moody’s Investors Service warned yesterday that a prolonged walkout could pressure some hospital ratings if already-thin operating margins are hurt by increased costs for temporary nurses and a drop in patient revenue.

The warning came in Moody’s weekly credit outlook and it follows the Friday filing of a 10-day notice by the Minnesota Nurses Association that it will strike as soon as July 6 if contract negotiations fail. Settlement talks resume today to avert what would be the largest nursing strike ever in the U.S.

In a vote early last week, 84% of nurses approved an open-ended strike. The action came after a one-day limited work stoppage earlier in the month that forced hospitals to hire 2,800 nurses from temporary agencies.

“A prolonged strike will ultimately cause rating pressure on these health systems if they suffer declining margins because of the expense of using agency nurses, which usually cost much more than permanent nurses. Patient volumes and revenues could also weaken,” Moody’s analysts said.

The impact of the strike would add to the revenue pressures area hospitals already face from annual increases in utility and supply costs, and as they brace for the impact of national health care reform.

Moody’s rates a collective $2.25 billion of debt carried by four of the Minneapolis and St. Paul region’s largest unionized systems: A1-rated Allina Health System, A2-rated Fairview Health Services, Ba1-rated HealthEast Care System, and A3-rated North Memorial Health Care. The first three have stable outlooks while North Memorial’s is negative.

“The effects on each system will depend on their individual financial position. Some are in better shape than others,” said analyst Sara Vennekotter.

The four systems rated by Moody’s generated $7.2 billion in revenue and $284 million in operating income in 2009. Allina’s 2009 operating margin was 5.95%, Fairview’s was 4.02%, HealthEast’s was 0.53 %, and North Memorial’s was negative 1.16%.

The strike could also challenge non-unionized hospitals’ balance sheets, as they may also need to hire agency nurses to deal with a possible spike in volume as patients turn to their facilities for treatment.

The contract issues under dispute involve nurse-to-patient staffing ratios and wages and benefits, with the nurses’ union pushing for fixed staffing ratios and hospitals’ pressing for flexibility to control costs. The union is seeking a salary increase of 3% in each of the proposed three years of the contract, while the hospitals have offered no increase in the first year, 1% in the second, and 2 % in the third, on top of annual step increases of 1.5% to 3%.

Moody’s also warned that over the long term, the region’s hospitals face challenges in maintaining their ­current levels of fiscal performance due to ­pressure from health care reform and inflexible labor costs. To control ­rising expenses, they likely will rely on flexible staffing and will limit salary ­increases, as salaries and benefits make up at least half of a hospital’s expense base.

The strike would include 12,000 ­nurses at 14 hospitals, including ­Allina’s Abbott Northwestern, Mercy, Unity, and Phillips Eye Institute; HealthEast’ St. John’s, St. Joseph’s, and Bethesda; North Memorial; Fairview’s Southdale and the Riverside campus of the University of Minnesota Medical Center; Children’s Hospitals and ­Clinics of Minnesota; and Park ­Nicollet ­Methodist.

For reprint and licensing requests for this article, click here.
Healthcare industry Minnesota
MORE FROM BOND BUYER