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U.S. Not-For-Profit Health Care System Median Financial Ratios -- 2019 vs. 2018

(Editor's Note: On Sept. 28, 2020, we corrected an error in the 2019 operating EBIDA margin.)

Health care systems generally follow median trends exhibited across the acute care sector, however with benefits from increased economic, business, and geographic dispersion that can lower volatility, the trends can sometimes be more moderate. This has led to a generally stable rating distribution overall compared with the distribution in August 2019 (see chart 1). However, a longer three-year view shows incremental shifts away from the 'AA' category and increases in the 'BBB' category.

While these financial medians do not yet reflect financial stress from the COVID-19 pandemic, we are already seeing a negative shift in the outlook distribution, which we believe could unfavorably influence the future rating distribution and fiscal 2020 medians. The June 30 health care system outlook distribution is significantly less favorable this year compared to the distribution published last year with 17% of health care systems carrying a negative rating outlook compared with just 5% last year (see chart 2). The number of positive outlooks has been relatively modest over the years, but has also been declining. While we have seen a rise in negative outlooks assigned to health care systems, the percent of negative outlooks is still lower when compared with our stand-alone hospitals.

The medians for all health care systems in 2019 remained generally stable overall compared with 2018 (see table 1). Additionally, unrestricted reserves relative to contingent liabilities continues a multi-year trend of improvement accelerated by recently low interest rates incentivizing long term public fixed rate financings. The defined benefit pension plan funding ratio dipped slightly due to declining discount rates. Rating trends by category (see table 2) and rating level (see tables 3A and 3B) are similar and especially consistent at the 'A' and 'AA' rating levels and categories. We have excluded medians on the speculative grade systems due to the small sample size of two.

S&P Global Ratings has ratings outstanding on 153 health care systems of which 146 (95%) are included in these median ratios. The number of rated health care systems has been fairly stable (we rated 151 systems last year), although revenue growth has been healthy as systems continue to actively participate in mergers and acquisitions.

Ratio Analysis

We view ratio analysis as an important tool in our assessment of the credit quality of not-for-profit health care organizations in addition to other key considerations, including our analysis of enterprise profile factors, the economic and regulatory environment, and forward looking views relative to both the business and financial positions. The median ratios offer a snapshot of the financial profile and help in the comparison of credits across rating categories. Tracking median ratios over time also presents a clearer understanding of industrywide trends and provides a tool to better assess the sector's future credit quality. Because of the intertwining of mission and operations among all members of an organization, the financial statements we generally use for the medians and our analyses are the system wide results, which include results for obligated and non-obligated group members.

Chart 1

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Chart 2

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Table 1

U.S. Not-For-Profit Health Care System Medians
Fiscal year 2019 2018 2017 2016 2015 2014 2013 2012
Sample size 146 142 144 146 142 140 138 143
Statement of operations
Net patient revenue (NPR; $000) 2,519,213 2,397,747 2,203,429 2,022,277 1,873,321 1,718,626 1,590,127 1,471,157
Total operating revenue ($000) 2,877,252 MNR MNR MNR MNR MNR MNR MNR
Salaries & benefits/NPR (%) 58.3 57.9 57.9 57.2 56.4 57.8 57.7 57.5
Maximum annual debt service coverage (x) 4.4 4.4 4.5 4.3 5.0 4.6 4.2 4.2
Operating lease-adjusted coverage (x)* 3.4 3.2 3.5 3.1 3.4 3.4 3.3 3.1
Debt burden (%) 2.2 2.2 2.2 2.3 2.3 2.4 2.6 2.7
EBIDA ($000) 303,095 282,188 265,041 223,165 278,605 247,243 204,975 198,121
Nonoperating revenue/total revenue (%) 1.9 1.7 2.1 1.1 2.0 2.6 2.5 1.8
EBIDA margin (%) 9.8 10.0 10.3 9.9 11.5 12.0 11.3 11.6
Operating EBIDA margin (%) 8.4 8.3 8.3 9.0 10.2 9.5 9.1 9.7
Operating margin (%) 2.7 2.3 2.2 2.4 3.6 2.9 2.2 2.9
Excess margin (%) 4.3 3.9 4.5 3.7 5.3 5.1 4.2 4.7
Capital expenditures/depr. & amort. exp. (%) 134.4 133.3 132.3 125.1 126.0 123.8 130.0 130.2
Balance sheet
Average age of plant (years) 11.0 10.6 10.8 10.6 10.5 10.4 10.5 10.4
Cushion ratio (x) 25.1 24.0 22.9 21.4 21.4 19.6 18.2 17.3
Days' cash on hand 218.3 213.3 205.5 197.6 205.5 203.1 204.6 193.8
Days in accounts receivable 46.5 45.8 47.8 48.2 48.0 48.1 50.2 50.8
Cash flow/total liabilities (%) 14.9 14.3 15.3 13.9 16.2 16.9 15.0 14.6
Unrestricted reserves ($000) 1,604,728 1,484,081 1,402,672 1,213,897 1,191,485 1,086,026 901,350 834,947
Unrestricted reserves/long-term debt (%) 175.6 175.1 173.3 169.5 161.0 153.4 141.5 137.3
Unrestricted reserves/contingent liabilities (%)* 645.8 594.1 546.3 507.6 462.6 451.2 MNR MNR
Contingent liabilities/long-term debt (%)* 28.7 31.8 33.2 31.9 34.4 36.7 MNR MNR
Long-term debt/capitalization (%) 31.6 31.7 32.3 34.0 33.7 34.6 35.1 39.2
DB pension funded status (%)* 81.8 84.8 81.0 74.0 78.2 82.0 83.6 68.7
Pension-adjusted long-term debt/capitalization (%)* 34.5 33.9 34.9 37.3 38.2 38.2 37.8 42.9
MNR--median not reported. *These five ratios are only for organizations that have defined-benefit (DB) pension plans, operating leases, or contingent liabilities.

Table 2

U.S. Not-For-Profit Health Care System Medians By Rating Category -- 2019 vs. 2018
AA A BBB
Fiscal year 2019 2018 2019 2018 2019 2018
Sample size 65 66 66 60 13 14
Statement of operations
Net patient revenue (NPR; $000) 3,603,041 3,178,449 2,345,110 2,265,892 1,767,828 1,764,142
Total operating revenue ($000) 4,190,784 MNR 2,605,688 MNR 2,034,197 MNR
Salaries & benefits/NPR (%) 57.1 57.5 58.5 58.4 62.6 62.5
Maximum annual debt service coverage (x) 5.9 5.7 3.7 3.8 2.5 2.6
Operating lease-adjusted coverage (x)* 4.2 4.4 3.0 2.9 2.1 2.1
Debt burden (%) 1.9 2.0 2.3 2.4 2.0 2.1
EBIDA ($000) 454,459 427,269 247,851 214,879 114,960 94,422
Nonoperating revenue/total revenue (%) 2.3 2.4 1.7 1.4 1.5 1.2
EBIDA margin (%) 11.6 10.9 9.1 9.6 5.5 5.6
Operating EBIDA margin (%) 9.6 9.8 7.6 7.5 4.2 4.6
Operating margin (%) 3.8 3.6 1.9 1.5 (1.1) 0.0
Excess margin (%) 6.0 5.7 3.6 3.2 0.6 0.9
Capital expenditures/depr. & amort. exp. (%) 135.8 145.0 132.0 126.0 103.4 99.6
Balance sheet
Average age of plant (years) 10.4 10.2 11.9 11.5 11.3 11.4
Cushion ratio (x) 33.2 33.1 19.2 19.3 17.6 17.9
Days' cash on hand 288.9 270.0 172.8 179.2 140.7 127.5
Days in accounts receivable 46.8 46.6 45.8 45.1 43.1 42.6
Cash flow/total liabilities (%) 19.0 18.5 13.1 13.2 6.6 7.9
Unrestricted reserves ($000) 2,781,745 2,836,706 1,205,384 1,179,006 763,598 667,950
Unrestricted reserves/long-term debt (%) 241.8 219.6 147.4 142.3 136.5 134.1
Unrestricted reserves/contingent liabilities (%)* 789.4 614.0 592.4 568.1 792.1 422.2
Contingent liabilities/long-term debt (%)* 35.5 40.2 25.6 25.7 15.8 18.5
Long-term debt/capitalization (%) 24.7 26.4 35.8 35.1 40.2 37.8
DB pension funded status (%)* 85.2 90.5 79.3 80.5 71.1 80.5
Pension-adjusted long-term debt/capitalization (%)* 26.4 27.6 39.2 38.0 47.6 43.2
MNR--median not reported. These medians exclude two speculative grade systems in both 2019 and 2018 due to a small sample size. *These five ratios are only for organizations that have defined-benefit (DB) pension plans, operating leases, or contingent liabilities.

Table 3A

U.S. Not-For-Profit Health Care System Medians By Rating Level -- 2019 vs. 2018
AA+ AA AA- A+
Fiscal year 2019 2018 2019 2018 2019 2018 2019 2018
Sample size 6 6 23 23 36 37 28 28
Statement of operations
Net patient revenue (NPR; $000) 3,882,221 4,071,473 4,050,320 3,224,352 3,213,282 2,875,242 2,010,024 1,763,656
Total operating revenue ($000) 4,036,916 MNR 4,887,899 MNR 3,320,191 MNR 2,290,450 MNR
Salaries & benefits/NPR (%) 54.8 52.1 58.0 58.1 56.9 57.4 55.3 56.6
Maximum annual debt service coverage (x) 9.3 9.4 7.6 6.4 5.0 4.8 3.9 4.4
Operating lease-adjusted coverage (x)* 7.3 5.9 4.9 4.7 3.8 3.3 3.1 3.2
Debt burden (%) 1.8 1.6 1.8 1.9 2.2 2.1 2.3 2.2
EBIDA ($000) 973,465 733,661 603,513 576,957 404,081 340,456 202,563 201,349
Nonoperating revenue/total revenue (%) 3.3 3.3 2.5 2.5 1.9 2.0 1.7 1.5
EBIDA margin (%) 14.6 14.8 12.7 12.4 10.9 10.4 9.5 10.1
Operating EBIDA margin (%) 11.0 12.0 9.8 10.1 9.2 9.5 7.5 7.4
Operating margin (%) 5.5 5.5 4.4 4.4 3.0 3.4 1.9 1.6
Excess margin (%) 9.4 9.2 6.6 6.7 5.5 4.9 3.3 3.3
Capital expenditures/depr. & amort. exp. (%) 134.6 159.9 153.8 153.2 132.6 135.3 122.4 120.3
Balance sheet
Average age of plant (years) 8.5 8.3 10.5 10.5 10.4 10.2 12.0 10.9
Cushion ratio (x) 61.0 61.2 41.1 39.4 29.6 26.5 21.6 21.1
Days' cash on hand 424.6 433.6 335.5 314.1 258.8 234.5 195.7 186.0
Days in accounts receivable 46.1 48.0 47.6 51.7 46.2 45.0 43.7 44.7
Cash flow/total liabilities (%) 32.9 22.1 24.6 21.2 17.5 15.7 15.5 15.1
Unrestricted reserves ($000) 5,454,963 5,276,407 4,057,238 3,565,073 2,257,133 2,037,800 1,138,498 941,089
Unrestricted reserves/long-term debt (%) 359.0 302.4 283.1 264.0 224.7 194.7 164.1 161.8
Unrestricted reserves/contingent liabilities (%)* 1,093.9 954.9 863.5 843.1 642.4 576.0 605.4 578.4
Contingent liabilities/long-term debt (%)* 35.2 40.6 43.2 41.5 31.5 39.3 26.7 30.4
Long-term debt/capitalization (%) 20.9 23.6 20.8 22.7 27.4 28.5 31.6 31.9
DB pension funded status (%)* 88.4 93.2 85.6 88.2 83.8 88.6 86.0 84.9
Pension-adjusted long-term debt/capitalization (%)* 21.4 25.4 23.2 23.3 30.0 30.5 32.7 33.5
MNR--median not reported. *These five ratios are only for organizations that have defined-benefit (DB) pension plans, operating leases, or contingent liabilities.

Table 3B

U.S. Not-For-Profit Health Care System Medians By Rating Level -- 2019 vs. 2018
A A- BBB+ BBB/BBB-**
Fiscal year 2019 2018 2019 2018 2019 2018 2019 2018
Sample size 30 23 8 9 9 10 4 4
Statement of operations
Net patient revenue (NPR; $000) 2,811,264 2,696,397 2,089,994 2,010,148 1,767,828 1,853,921 3,223,000 1,718,699
Total operating revenue ($000) 2,920,867 MNR 2,450,143 MNR 2,034,197 MNR 4,003,663 MNR
Salaries & benefits/NPR (%) 59.5 59.7 66.0 64.7 65.0 61.1 62.1 62.5
Maximum annual debt service coverage (x) 3.7 3.5 3.4 3.2 2.7 2.8 2.3 2.1
Operating lease-adjusted coverage (x)* 3.1 2.7 2.7 2.4 2.1 2.3 2.0 1.8
Debt burden (%) 2.3 2.5 2.5 2.4 1.9 2.1 2.1 1.7
EBIDA ($000) 285,841 273,620 236,171 215,399 100,739 120,844 224,670 89,476
Nonoperating revenue/total revenue (%) 1.5 1.3 1.9 1.3 1.5 1.9 1.2 0.4
EBIDA margin (%) 9.0 8.6 9.3 8.3 5.7 6.1 5.1 4.2
Operating EBIDA margin (%) 8.0 7.6 7.2 7.8 4.6 5.0 3.2 3.9
Operating margin (%) 1.8 2.1 1.7 1.0 (1.1) 0.1 (1.4) (0.4)
Excess margin (%) 3.5 3.3 3.9 2.5 0.4 1.0 0.6 0.3
Capital expenditures/depr. & amort. exp. (%) 134.6 128.6 133.5 159.0 81.2 89.4 142.0 159.2
Balance sheet
Average age of plant (years) 11.8 12.1 11.5 13.1 11.3 11.0 11.1 13.4
Cushion ratio (x) 18.5 18.8 15.7 13.7 17.9 18.0 14.2 16.4
Days' cash on hand 160.6 175.8 138.3 135.2 142.9 152.9 112.5 80.6
Days in accounts receivable 47.6 46.5 41.0 44.2 43.1 42.1 42.9 44.8
Cash flow/total liabilities (%) 12.2 11.6 12.0 12.5 7.8 8.5 4.7 5.2
Unrestricted reserves ($000) 1,462,285 1,441,898 1,059,182 1,122,312 763,598 704,582 873,022 421,526
Unrestricted reserves/long-term debt (%) 136.1 136.6 100.9 96.2 138.0 148.8 105.9 73.6
Unrestricted reserves/contingent liabilities (%)* 531.6 555.2 444.9 565.5 828.9 553.9 792.1 295.7
Contingent liabilities/long-term debt (%)* 25.7 24.9 19.7 19.3 15.8 31.8 14.4 14.9
Long-term debt/capitalization (%) 38.8 40.2 46.7 45.9 35.0 36.8 53.0 46.8
DB pension funded status (%)* 75.9 77.0 74.8 80.6 71.1 79.7 71.9 94.8
Pension-adjusted long-term debt/capitalization (%)* 43.7 43.0 47.7 45.9 36.7 41.3 53.8 48.7
MNR--median not reported. These medians exclude two speculative grade systems in both 2019 and 2018 due to a small sample size. *These five ratios are only for organizations that have defined-benefit (DB) pension plans, operating leases, or contingent liabilities. **Includes four 'BBB' rated systems in 2019, and one 'BBB-' and three 'BBB' rated systems in 2018.

Related Research

Glossary of our ratios
Monthly rating changes

This report does not constitute a rating action.

Primary Credit Analysts:Cynthia S Keller, New York (1) 212-438-2035;
cynthia.keller@spglobal.com
Chloe A Pickett, Centennial (1) 303-721-4122;
Chloe.Pickett@spglobal.com
Secondary Contacts:Suzie R Desai, Chicago (1) 312-233-7046;
suzie.desai@spglobal.com
Patrick Zagar, Farmers Branch (1) 214-765-5883;
patrick.zagar@spglobal.com
Research Contributors:Adwait Chandsarkar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
Blake C Fundingsland, Centennial (1) 303-721-4703;
blake.fundingsland@spglobal.com
Alexander Nolan, Centennial (1) 303-721-4501;
alexander.nolan@spglobal.com
Prashant Singh, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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