The Temple University Health System was downgraded yesterday by the credit rating agency Moody’s, which could slow down its efforts to make it in a competitive market.
Less than two months after a similar downgrade from Fitch’s, Moody’s revised its rating of a $525 million debt held by Temple from Ba1 to Ba2, with a negative outlook. In comparison, the Children’s Hospital of Philadelphia has an Aa2 bond rating and a stable outlook. Penn Health System is rated Aa3. Thomas Jefferson University is rated A1.
This means that Temple Health will see its lending costs rise, and may have to cut spending. “It’s not good news for the health system or for the people who use it,” said Mark Pauly, a professor of Health Care Management at Wharton University.
In its announcement, Moody’s noted there is little chance the Temple University Health System will be upgraded any time soon – at precisely a time when it is seeking to expand. “Temple has been trying to move aggressively and this kind of is a bump in the road,” said Pauly.
Temple Health will also face increased costs in the near future as a result of the roll-out of the Affordable Care Act. Some of the law’s provisions, like the creation of a new electronic health-care records system, will require hospitals to invest in training and infrastructure changes. There’s “an awful lot that hospitals need to do to survive in the new era,” said Pauly.
But Temple’s strength, which is also outlined as a weakness in Moody’s report, lies in its ability to rely on public funding, because of the important role it plays in the Philadelphia health care market. The Temple University Hospital alone is the seventh-largest private employer in Philadelphia, according to a 2013 Pew report. Temple Health is an “essential” safety net provider in the Philadelphia area according to Moody’s, with 42% of its revenue from last fiscal year coming from Medicaid.
Still, the $525 million is held by the Hospitals and Higher Education Facilities Authority of Philadelphia, a public organization that provides loans to local nonprofit hospitals. Whatever the outcome is, the costs are ultimately on the taxpayer. “To some extent we all have a stake in Temple’s system,” said Pauly.
Temple Health commented only that it is "disappointed in and does not agree with the Moody's report" and remains "optimistic that the steps we have undertaken are likely to result in improvements in financial performance."
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