Prov­i­dence looks to growth af­ter rat­ings down­grades

Modern Healthcare - - REGIONAL NEWS - —Beth Kutscher

Two rat­ings agencies have down­graded Prov­i­dence Health & Ser­vices’ bonds, cit­ing the sys­tem’s weaker fi­nan­cial per­for­mance in 2013 and higher debt bur­den. Prov­i­dence—one of the na­tion’s largest not-for-profit health sys­tems by rev­enue—says its re­sults will im­prove this year as it moves be­yond costly in­vest­ments.

Moody’s In­vestors Ser­vice down­graded Prov­i­dence’s new Se­ries 2014A bonds and long-term par­ity debt to Aa3, one notch be­low the sys­tem’s pre­vi­ous Aa2. Stan­dard & Poor’s down­graded Prov­i­dence’s new and out­stand­ing bonds to AA- from AA.

Prov­i­dence’s op­er­at­ing mar­gin de­clined to 0.3% in fis­cal 2013, down from 1.6% the pre­vi­ous year, Moody’s said, adding that it’s the third year the Renton, Wash.-based sys­tem has un­der­per­formed its his­tor­i­cal met­rics. Prov­i­dence also saw an 8% in­crease in its debt in 2013 and plans an­other 7% debt in­crease this fis­cal year. Its un­der­funded pen­sion li­a­bil­ity was $819 mil­lion at the end of fis­cal 2013, ac­cord­ing to Moody’s.

Todd Hofheins, Prov­i­dence’s chief fi­nan­cial of­fi­cer, said the sys­tem’s lower op­er­at­ing mar­gin re­flects a num­ber of in­vest­ments that should lead to greater fu­ture prof­itabil­ity. For in­stance, Prov­i­dence im­ple­mented elec­tronic healthrecord sys­tems in all five of its states at a cost of $750 mil­lion, he said, de­scrib­ing the move as crit­i­cal to its ac­count­able­care and pop­u­la­tion-health ini­tia­tives.

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